<PAGE>

================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-K


[ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934
                                      or
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
        EXCHANGE ACT OF 1934

                    For the fiscal year ended June 30, 1998

                          Commission File No. 0-19128
                             ---------------------

                      CAPITAL GAMING INTERNATIONAL, INC.
            (Exact name of registrant as specified in its charter)

             New Jersey                                  22-3061189
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
    incorporation or organization)

                      2701 East Camelback Road, Suite 484
                            Phoenix, Arizona 85016
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (602) 667-0670

       Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, no par value

         Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [   ]     No [ X ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]

         The aggregate market value of the Registrant's Common Stock, no par
value, held by non-affiliates, computed by reference to the average of the
closing bid and asked prices of the Common Stock as reported by the
"NASDAQ-Electronic Bulletin Board" on June 25, 1997 was $0.03 per share.*

Number of shares of Common Stock of the Registrant issued and outstanding as
of September 30, 1998 was 1,933,333

                   DOCUMENTS INCORPORATED BY REFERENCE 
                                     NONE
-----------------
*The Company's common stock was delisted from the NASDAQ OTC Bulletin Board
effective June 25, 1997 because there were no marketmakers for the Company's
common stock. The Company may seek relisting in the future if it can satisfy
certain relevant criteria including registration of market makers.




<PAGE>


                               TABLE OF CONTENTS
<TABLE>
<CAPTION>

 
                                                                                                              Page
                                                                                                              ----
<S>         <C>

ITEM 1.  BUSINESS.................................................................................................1

ITEM 2.  PROPERTIES..............................................................................................22

ITEM 3.  LEGAL PROCEEDINGS.......................................................................................22

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................23

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................23

ITEM 6.  SELECTED FINANCIAL DATA.................................................................................24

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................26

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS ............................................36

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................36

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................36

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS........................................................................37

ITEM 11. EXECUTIVE COMPENSATION..................................................................................38

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................45

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................46

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.........................................47
</TABLE>

                                       i
<PAGE>


ITEM 1. BUSINESS

General

         Capital Gaming International, Inc., a New Jersey Corporation, (the
"Company"), together with its subsidiaries, is a multi-jurisdictional gaming
company with gaming management and development interests with Native American
Tribes in several states. The management and development of Native American
gaming facilities is conducted through Capital Gaming Management, Inc. ("CGMI"),
a wholly-owned subsidiary of the Company. The development of the Narragansett
Project (the "Narragansett Project") is conducted through Capital Development
Gaming Corp. ("CDGC"), a wholly-owned subsidiary of the Company.

         CGMI developed and currently manages two Class III (as hereinafter
defined) Native American gaming facilities.

         Tonto Apache Tribe - Payson, Arizona (Class III facility became
operational in April 1995)

         Umatilla Tribes - Pendleton, Oregon (Class III facility became
operational in March 1995)

         CGMI also has a management development agreement with the Pueblo of
Laguna Tribe pursuant to which CGMI is developing a Class III gaming facility on
the tribe's sovereign lands located on I-40 west of Albuquerque, New Mexico.

         CDGC has a management and development contract for the Narragansett
Project with the Narragansett Tribe for the development of a Class III gaming
facility either on the tribe's sovereign lands near Charlestown, Rhode Island or
elsewhere in the state of Rhode Island as may be permitted by law. See "Native
American Gaming Operations".

         Gaming has evolved into a national industry. Approximately 33 states
sponsor lotteries. Bingo games operated by charities are legal in at least 46
states. In addition to the primary markets in Nevada and New Jersey, gaming
activities have expanded to include riverboat and dockside gaming,
state-sponsored video lotteries, limited stakes casino gaming and Native
American gaming. Other forms of gaming conducted in certain areas of the United
States include slot machine gaming, or variations thereof, in restaurants, bars,
hotels and truck stops; pari-mutuel betting on horse racing, dog racing and
jai-alai; sports book making and card rooms. The Company is actively seeking new
opportunities in Native American gaming and other gaming market jurisdictions.

Company's Strategy

         The Company is focusing its efforts on maintaining its existing gaming
management interests with Native American Tribes, pursuing a strategy to develop
CGMI's and CDGC's Native American gaming operations and seeking other gaming
opportunities in existing and emerging gaming jurisdictions. The Company
believes that it has significant opportunities in Native American gaming because
of its demonstrated and continued success at the facilities it currently manages
through its subsidiaries, its approval and/or licensing by the National Indian
Gaming Commission (the "NIGC") and various state and tribal gaming jurisdictions
and its excellent reputation in this industry segment. The Company continues to
focus on management, consulting and development opportunities in Native American
gaming jurisdictions where the Company is already licensed, as well as in new
jurisdictions. The Company is also focusing on secondary gaming market
opportunities in various jurisdictions where opportunities exist parallel to the
size and scope that the Company has successfully developed and manages in the
Native American gaming segment of the gaming industry.

         Management believes its experience in and early entry into the Native
American gaming segment of the gaming industry and receipt of certain
approvals from the NIGC and other state and tribal regulatory authorities will
provide it with a competitive advantage over companies just entering Native
American gaming development and management.

Company History

         The Company was originally organized in June 1990 as a New Jersey
Corporation and was involved in an unrelated business prior to its entry into
the Native American gaming segment in 1993. From March 31, 1992 through January
20, 1993, the Company

                                      1
<PAGE>

entered into a series of transactions with Great American Recreation, Inc. and
its wholly-owned subsidiary (collectively, "GAR") pursuant to which the
Company sold its assets in this unrelated business segment to GAR. Management
believes that the foregoing transactions have resulted in the satisfaction of
substantially all of the liabilities associated with these prior unrelated
business activities conducted by the Company.

         With the January 1993 hiring of experienced casino industry executives,
the Company embarked on its new strategy of pursuing opportunities in emerging
segments of the gaming industry.

Native American Gaming Operations

         Background on Native American Gaming

         Native American casino gaming has been a rapidly growing part of the
casino gaming industry. A 1987 United States Supreme Court decision opened the
way for full-scale Native American casinos. The Supreme Court held that if a
state has legalized any form of gaming, even in a restricted form, Native
American Tribes have the right to offer the same gaming on Native American
land, free of state restrictions. In 1988, in response to this decision and to
promote Tribal economic development and self-sufficiency, Congress passed the
Indian Gaming Regulatory Act ("IGRA" or the "Act"). The Act provides the
framework for federal, state and Tribal control over Native American gaming.
Native American Tribes must negotiate compacts with their host states before
certain types of gaming are allowed. If the state does not negotiate a compact
in "good faith" with the Tribe, the Act provides that the Tribe may sue the
state in federal court to force the state to negotiate. If the state continues
to resist negotiations, the Act provides that a court-appointed mediator will
impose upon the parties either the compact proposed by the state or the
compact proposed by the Tribe.

         Several states have resisted entering into Tribal/State Compacts. In
1996, the United States Supreme Court held in the case Seminole Tribe of Florida
v. Florida, that a state may assert an 11th Amendment immunity defense where a
Tribe has commenced an action to enforce the state's obligation to negotiate in
good faith. Thus, the federal courts are incapable of providing the relief
contemplated by IGRA. In response to Seminole, the Secretary of the United
States Department of Interior (the "Secretary of the Interior") has requested
comments as to how the Secretary of the Interior should implement his authority
to promulgate Secretarial procedures which would govern gaming where a state has
asserted the 11th Amendment immunity from suit. If the Secretary of the Interior
decides to adopt such procedures, and if such procedures withstood legal
challenge, the procedures would substitute for the Tribal/State Compacts.

         The Act divides the types of games which may be played into two
principal classes, Class II gaming and Class III gaming. "Class II gaming"
generally consist of bingo, pull-tabs, lotto and, in some circumstances,
poker. "Class III gaming" generally consists of all other forms of commercial
gaming, including table games such as blackjack, craps and roulette, slot
machines and video gaming (including video blackjack and poker), sports
betting and pari-mutuel gaming. The forms of gaming allowed in any class vary
from state to state depending upon the terms of each Tribal/State Compact.
Class II gaming is permitted on Native American land if (a) the state in which
the Native American land is located permits such gaming for any purpose by any
person; (b) the gaming is not otherwise specifically prohibited on Native
American Land by federal law; (c) the gaming is conducted in accordance with
an approved Tribal ordinance; and (d) other miscellaneous requirements are
met. Class III gaming is permitted on Native American land if the conditions
applicable to Class II gaming are met and, in addition, the gaming is in
compliance with the terms of the compact between the Tribal government and the
applicable state government. All compacts between Tribes and states must be
approved by the Secretary of the Interior.

         Operations of the Company's Subsidiaries

         CGMI was incorporated on October 24, 1978, as a wholly-owned
subsidiary of Bass Leisure Group, Inc., a wholly-owned subsidiary of Bass,
PLC. CGMI operated in the Class II gaming market, primarily providing
management for high stakes bingo facilities of certain Native American tribes.
On November 19, 1993, the Company acquired all of the issued and outstanding

                                      2
<PAGE>


shares of voting common stock of CGMI for a total purchase price of $2.6
million. At the time of CGMI's acquisition by the Company, CGMI was managing
Class II gaming facilities for the Oneida, Muckleshoot and Cow Creek Tribes.
Also, CGMI had executed a management contract with the Narragansett Tribe
which was and remains in the developmental stage. CGMI was also involved in
preliminary negotiations with regard to the execution of a Class III gaming
management contract with the Muckleshoot Tribe. As contemplated by various
agreements of the Company, CGMI's management and development rights and
obligations with the Narragansett Tribe were subsequently transferred to CDGC.

         In August 1994, CGMI's management contract with the Umatilla Tribe was
approved by the NIGC. The approval followed an extensive background
investigation as required by applicable NIGC regulations into the Company's past
and current business activities and practices as well as the Company's key
employees. This approval was significant because the background investigations,
as well as certain environmental approvals, require the most time in the entire
NIGC management contract approval process. The management contracts between CGMI
and the Tonto Apache Tribe and the Muckleshoot Tribe were approved by the NIGC
in January 1995 and April 1995, respectively. The Company and its subsidiaries
invested approximately $27 million towards the expansion of existing facilities
and for the development of new Class III gaming facilities for which it had
signed contracts exclusive of the proposed Narragansett project. Of that amount,
$3.3 million represented equipment financing obtained on behalf of the Tribes.
The expenditures have included construction/expansion costs, equipment
purchases, pre-opening expenses and general working capital. The funds were
invested in the form of capital loans from CGMI to the Tribes and are required
to be repaid with interest and principal, generally over the life of the
management contracts. In September 1995, the Cow Creek Tribe prepaid
approximately $824,000 and the Muckleshoot Tribe prepaid approximately $7.6
million of loans made by CGMI to these Tribes relating to the construction of
their respective facilities. Additionally, in September, 1998 the Umatilla
Tribes made their final installment of principal and interest to CGMI. As of
June 30, 1998, CGMI was owed approximately $3,693,000 on account of remaining
tribal loans.

         The Company intends to maintain a focused strategy to develop CGMI's
and CDGC's Native American gaming operations and to attempt to capitalize on its
presence in Native American gaming and general casino experience and to seek
additional management contracts.

         CGMI's and CDGC's principal existing and development projects are
described below.



                                      3
<PAGE>
         Capital Gaming Management, Inc.

         Tonto Apache Contract (Mazatzal Casino - Payson, Arizona). 

         CGMI currently manages the 35,000 square foot Mazatzal Casino for the
Tonto Apache Tribe which offers slot machines, keno, poker, pull tabs and high
stakes bingo in addition to non-gaming amenities including a restaurant, sports
bar and gift shop. The Mazatzal Casino commenced operations on April 27, 1995.

         The Mazatzal Casino targets both the local Payson residents and other
persons living 75 miles to the south in the Phoenix, Arizona metropolitan
area. The Mazatzal Casino is located just south of Payson on Highway 87. In
addition to the Payson area residents, the Mazatzal Casino attracts people
from the Phoenix area on day trips and weekend vacations, particularly because
of the more desirable climate in Payson during the summer months.

         On June 29, 1993, CGMI signed a five year management contract with
the Tonto Apache Tribe (the "Tonto Apache Management Contract"), to construct
and operate a Class III gaming facility which would offer slot machines, keno,
high stakes bingo, non-banking table games and OTB. The five-year term
commenced on the date the facility opened in April 1995. The Tonto Apache
Management Contract may be extended for two years at the option of the Tonto
Apache Tribe and upon application to the NIGC. The Tonto Apache Management
Contract provides for CGMI to receive a management fee of 30% of Net
Distributable Profits (as defined therein).

         The Tonto Apache Management Contract between CGMI and the Tonto Apache
Tribe was approved by the NIGC on January 30, 1995. In addition, in February
1995, the Company received temporary management certification from the Arizona
State Gaming Agency and anticipates receiving full certification in the near
future.

         Confederated Tribes of the Umatilla Indian Reservation Contract
         (Wildhorse Gaming Resort - Pendleton, Oregon).

         CGMI currently manages the Wildhorse Gaming Resort for the Umatilla
Tribes which offers video-lottery terminals, black jack, poker, OTB, keno and
high stakes bingo in addition to non-gaming amenities including a restaurant and
gift shop. The Wildhorse Gaming Resort commenced operations on March 10, 1995.

         The Wildhorse Gaming Resort targets local residents of the Tri-Cities
area of southern Washington (Richland, Kennewick and Pasco). The Wildhorse
Gaming Resort site is accessible to residents within a 100 mile radius that
also includes Pendleton and Walla Walla. The Wildhorse Gaming Resort is
located approximately 200 miles east of Portland, Oregon, and targets business
travelers and tourists by attracting potential customers traveling along
Interstate 84, the main east-west freeway in northern Oregon and the location
of the historic Oregon trail.

         CGMI signed a five year contract on November 9, 1993, with the
Umatilla Tribe (the "Umatilla Management Contract"), to construct, manage and
operate a Class II and Class III gaming facility. The five-year term commenced
on the date the facility opened in March 1995. The Umatilla Management
Contract provides for a management fee of 30% of Net Distributable Profits
after debt service (as defined therein). The Umatilla Management Contract may
be extended for two years if certain contingencies are met. The Umatilla
Management Contract between CGMI and the Umatilla Tribe was approved by the
NIGC on August 17, 1995, and the State of Oregon has approved the Company as
being suitable to manage/finance Native American gaming operations in the
State of Oregon.

Pueblo of Laguna Contract (Pueblo of Laguna, I-40, New Mexico)

         On July 24, 1998 CGMI entered into a management and development
agreement with the Pueblo of Laguna to exclusively develop, finance, construct,
operate and manage a casino to be located on Interstate 40 on the tribe's
sovereign reservation lands approximately 45 miles west of Albuquerque, New
Mexico. The proposed 30,000 square foot casino will offer Las Vegas - style
table games, slot machines and poker as well as restaurants, a gift shop and
other ammenities. The management and development agreement, which is subject to
the approval of the NIGC, provides that CGMI will receive a management fee of
30% of "Net Distributable Profits" (as defined therein) over a term of seven (7)
years from the official date of opening of the casino. The Company currently
anticipates financing the Pueblo of Luguna Casino from existing cash reserves.
The Company is seeking third party financing as an alternative to self-financing
the casino.


                                      4
<PAGE>
         Capital Development Gaming Corp.

         Narragansett Contract - Native American Casino (Rhode Island). 

         Through CDGC, the Company entered into a seven-year management and
development contract with the Narragansett Indian Tribe (the "Narragansett
Contract") for the development of a Class II and Class III gaming facility in
Rhode Island. The Narragansett Contract provides for the Company to receive a
management fee of 30% of Net Distributable Profits (as defined therein) of the
gaming facility for the first five years, commencing on the opening of the
facility and 20% for the remaining two years. As part of the Narragansett
Contract, the Company is required to advance funds for the development of the
Rhode Island Project and the construction of the gaming facility which will be
repaid over a seven-year period commencing with opening of the facility. The
Narragansett Contract was submitted to the NIGC for approval in June 1995.

         In August 1996, the NIGC submitted comments on the Narragansett
Contract. As a result of the Decision (as defined below) invalidating the
Compact (as defined below), the NIGC informed the Company and the Narragansett
Tribe that the NIGC would only consider a contract relating solely to Class II
gaming. In light of this, the Company bifurcated the Narragansett Contract
(the "Management Agreement") and submitted it on June 21, 1996 for review and
approval by the NIGC of only the portions relating to Class II gaming. The
Company reclassified the Class III contract as a development contract until
such time as a Tribal/State Compact for Class III gaming was signed. However,
as a result of the Chafee Rider (as defined below), on December 16, 1996, the
NIGC declined further review of the Management Agreement.


         In declining to review the Management Agreement, the Chairman of the
NIGC asserted that as a result of the application of the Chafee Rider, the
Narragansett Tribe lost its rights to conduct both Class II and Class III gaming
under the Indian Gaming Regulatory Act ("IGRA"). An appeal of the NIGC's action
was filed on December 20, 1996, and on June 17, 1997, the NIGC issued a final
decision upholding the Chairman's actions.

         In light of the Decision (as defined below) to invalidate the Compact
and the application of the Chafee Rider (as defined below), no assurance can be
given if, or when, NIGC approval of the management contract will be obtained or
if the Narragansett Tribe will be able to establish a commercial gaming
enterprise (Class II or Class III) under IGRA. Additionally, it is possible, as
a condition of obtaining such approval, that the NIGC will require material
modifications to the Narragansett Contract.

         Tribal/State Compact

         In August 1994, a Tribal/State Compact (the "Compact") was entered into
between the Narragansett Tribe and Governor Bruce Sundlan of Rhode Island. In
November of 1994, a lawsuit was filed by Rhode Island Attorney General Pine (the
"Pine Case") seeking to void the Compact on the grounds that the Governor of
Rhode Island lacked the authority to bind the State of Rhode Island absent State
Legislative approval. In 1995, Rhode Island's new Governor, Governor Almond,
joined with the Attorney General in the Pine Case.

         In February 1996, the United States District Court for the District of
Rhode Island decided that the Compact was void for lack of State Legislative
approval (the "Decision"). The State of Rhode Island has subsequently refused to
negotiate with the Narragansett Tribe. In light of this Decision, and similar
decisions in other states, the Secretary of the Interior (the "Secretary")
requested comments from the public as to whether the Secretary has the authority
to adopt Secretarial procedures to permit gaming under IGRA for the Tribes in
states (such as Rhode Island) that refuse to negotiate Tribal/State Compacts in
good faith. On January 22, 1998, a Proposed Rule on Class III Gaming Procedures
("Proposed Rule") was promulgated by the Department of the Interior.

<PAGE>

         Department of the Interior Proposed Rule on Class III Gaming Procedures

         The proposed rule sets forth the authority and procedures by which the
Department of the Interior will review requests for approval of Class III gaming
when a State interposes its immunity from suit brought by an Indian Tribe
seeking to enter into a compact with the State pursuant to which gaming
activities would be governed. The proposed rule also sets forth the process and
standards by which such procedures would be adopted. Written comments concerning
the proposed rule were due with the Department of the Interior on or before June
22, 1998. The comments are currently under review. In March of 1998, the U.S.
Senate voted to prohibit the Department of the Interior from proceeding with the
regulations. However, the ban, which was part of an emergency spending bill, was
lifted in September 1998 from the bill by a joint U.S. House - U.S. Senate
conference committee. It is unknown what further action, if any, Congress may
take concerning the proposed rule. Considerable opposition to the proposed rule
has been received from at least 25 states. Additionally, the National Gambling
Impact Study Commission (the "Commission") voted in July of 1998 to recommend to
the Department of the Interior that no final rules be issued or published until
after the Commission submits its report to Congress in June of 1999. As a
result, in September 1998, Congress passed certain legislation prohibiting the
Department of the Interior from proceeding any further with the proposed rule
prior to October 1, 1999. There can be no assurance as to when a final rule will
be issued or whether the final rule will apply to the Narragansett Tribe in
light of the Chafee Rider (defined below). However, as a result of the Chafee
Rider (as defined below), there can also be no assurance that the Secretary of
the Interior will have the authority under the final rules to impose a
Tribal/State Compact between the Narragansett Tribe and the State of Rhode
Island.

                                       5
<PAGE>
         The Chafee Rider

         In September 1996, Federal legislation was passed as a non-relevant
rider (introduced by U.S. Senator John Chafee of Rhode Island, (the "Chafee
Rider") to the must-pass Omnibus Appropriations Bill which has the effect of
singling out the Narragansett Tribe's reservation (where the gaming facility
was planned) for exclusion from the benefits of IGRA. The Chafee Rider, which
the Company believes discriminates against the Narragansett Tribe by treating
it differently than every other Tribe in the United States, was passed without
hearings or debate, with no consultation with the Narragansett Tribe and over
the objections of ranking members of the Senate Indian Affairs Committee.

         In February 1997, as a result of the NIGC's decision to decline further
review of the Management Agreement and the application of the Chafee Rider, the
Narragansett Tribe initiated litigation in the United States District Court for
the District of Columbia (the "District Court"), naming the NIGC and its
Chairman as defendants. In this action, the Narragansett Tribe sought a
declaration of the District Court, that, among other things, would declare the
Chafee Rider unconstitutional under the equal protection component of the Fifth
Amendment to the U.S. Constitution, along with an injunction requiring the NIGC
to review the Management Agreement. Both the Narragansett Tribe and the NIGC
filed cross-motions for summary judgement in the matter. In August 1997, the
District Court granted the NIGC's motion for summary judgement. An appeal has
been filed by the Narragansett Tribe in the United States Court of Appeals for
the District of Columbia and is pending. The United States Court of Appeals has
held oral argument on the matter and the parties are awaiting the court's
decision.

         In May 1997, a Congressional Review of the Chafee Rider was initiated
with a hearing before the Committee on Resources of the U.S. House of
Representatives (the "Committee"). The hearing included testimony from the
Department of the Interior, the Narragansett Tribe and the National Council of
American Indians, all of whom testified in support of the repeal of the Chafee
Rider, as well as from several political leaders from the State of Rhode Island
in support of the Chafee Rider. In June 1997, legislation that would amend and
effectively repeal the Chafee Rider ("H.R. 1983") was introduced in the House of
Representatives by Rep. Patrick J. Kennedy (D-RI), a member of the Committee,
and co-sponsored by Rep. Don Young (R-AK), the Chairman of the Committee and
Rep. Dale E. Kildee (D-MI), a member of the Committee and Co-Chairman of the
Congressional Native American Caucus. H.R. 1983, known as "The Narragansett
Justice Act," has subsequently cleared the Committee. No assurances can be given
as to the ultimate outcome of H.R. 1983.

         Ongoing Project Development

         Unless the Chafee Rider is overturned, the Narragansett Tribe is
precluded from establishing a Class II or Class III gaming facility under IGRA.
Under Rhode Island State Law, therefore, the Narragansett Tribe's only recourse
to establish a gaming facility, absent a repeal of the Chafee Rider, is to
submit the issue to a statewide and local referendum. As a result of the Chafee
Rider, the Narragansett Tribe has focused its efforts on seeking voter approval
of a gaming facility to be located in Providence, Rhode Island. The earliest
date upon which any such referendum could be held is November 2000. In June 1998
the Rhode Island General Assembly passed a bill requiring the state
legislature's approval prior to any such referendum question being placed on the
ballot. Additionally, the bill provides that the host city or town must also
approve any such referendum question prior to its being placed on the ballot.
There can be no assurance that any such referendum would be successful or, if
successful, what the ultimate scope of permitted gaming would be.

         In spite of the set-backs caused by the invalidation of the Compact and
the application of the Chafee Rider, the Company intends to pursue the Rhode
Island Project. However, there can be no assurance that any legislative,
judicial or administrative efforts will be successful.

         Bureau of Indian Affairs Approval

         On September 3, 1998 the Secretary of the Interior and the Deputy
Commissioner of the Bureau of Indian Affairs approved the Management Agreement
between the Narragansett Tribe and CDGC pursuant to 25 CFR Section 81. While
this approval does not impact the Narragansett Tribe's right to offer gaming
pursuant to IGRA, the approval is significant because it protects the
Narragansett Tribe and CDGC from any assertion that the Management Contract is
null and void under the provisions of 25 U.S.C. Section 81 due to lack of
approval. 

                                       6
<PAGE>
         Other Matters

         In connection with the Narragansett Tribe's efforts to seek statewide
voter approval of a gaming facility to be located in Providence, Rhode Island in
the November 1998 general election, the Company had retained Donaldson, Lufkin
and Jenrette Securities Corporation ("DLJ") to act as its exclusive financial
advisor with respect to the review and analysis of financial and structural
alternatives available to the Company. As part of such engagement, the Company
agreed to issue warrants to DLJ to purchase five (5%) percent of the Company's
issued and outstanding common stock on a fully diluted basis, to be exercisable
only if the Narragansett Tribe succeeded in winning voter approval for a
Narragansett gaming facility. In light of the fact that a voter referendum will
not occur in November 1998, and the uncertainty surrounding any future voter
referendum, the Company has not issued such warrants.

         The Company has continued funding the on-going development costs of the
Narragansett development project, which at June 30, 1998, has totaled
approximately $10.9 million consisting primarily of legal costs, environmental
engineering and assessment costs, design costs and other administrative costs.
At June 30, 1998, approximately $9.3 million in development costs (of the $10.9
million expended) will be recoverable by the Company only if and when a gaming
facility is established by the Narragansett Tribe. Repayment of the development
costs will be made solely from the distributable profits of the gaming facility.
These funds were expended cumulatively over the period from Spring 1993 to
present.

         New England is already home to several full scale casinos, including
the Foxwoods Casino operated by the Mashantucket Pequot Tribe and the Mohegan
Sun Casino operated by the Mohegan Tribe, which opened in October 1996. Both of
these casinos are in Connecticut. It is possible that other casinos will be
established in other parts of New England, including Massachusetts. Because of
the market size, the establishment of existing and such other casinos could
have an adverse impact on the Narragansett casino's gross revenues and, in
turn, on the income generated by CDGC under the Narragansett Contract.

         In order to fund the construction costs for the project, it is
anticipated that the Company will require significant additional capital. The
inability of the Narragansett casino to offer Class III gaming could create a
competitive disadvantage. There can be no assurance that such financing will be
available, or if available, that the terms thereof will be acceptable to the
Company.

Other Projects of the Company

         Jena Band of Choctaws Contract. When the Company completed the
acquisition of CGMI, there was an existing management contract relating to the
development of a Class III gaming facility with the Jena Band of Choctaws Tribe
in Louisiana (the "Jena Contract"). The Jena Contract has not been submitted to
the NIGC for approval by the Tribe. Subsequent to the execution of the Jena
Contract, the Jena Band of Choctaws became a federally-recognized tribe. This
effort was funded by the Company. The Jena Tribe has advised the Company that it
does not believe it is bound by the existing agreement, and the Jena Tribe has
had discussions with other management companies. The Company intends to enforce
its rights under the Jena Contract against any third parties which interfere
with this relationship.

         Native American Gaming Competition

         The Native American gaming industry has experienced significant
growth in the past few years and competition by management companies for
favorable Class II and Class III contracts has increased significantly. In
contrast to the early stages of Native American gaming, well-established
companies in the primary gaming market now compete for a limited number of
Tribal management contracts as opposed to significantly smaller operations
which competed for such contracts a few years ago. As a result of such
competition, new contracts may become less lucrative to management companies
such as the Company as the Tribes have more management companies to choose
from. Additionally, many of the Company's competitors have substantially more
gaming experience, are larger and have greater financial resources to fund the
development of new Tribal gaming operations and to attract new management
contracts.

         Additionally, Native American casinos experience intense competition
from other Native American casinos, state sponsored lotteries and gaming,
charitable gaming, as well as from gaming in primary markets (Nevada and New
Jersey) and secondary markets (including riverboat, dockside, card rooms, bars
and truck stop operations). There can be no assurance that such competitive
factors will not negatively impact existing or future casinos which the
Company manages.

                                       7
<PAGE>

Reorganization

         Reorganization of Crescent City Capital Development Corp. and Sale of
Discontinued Operation

         Crescent City Capital Development Corp. ("CCCD"), a former
wholly-owned subsidiary of the Company, held a 50% interest in a riverboat
joint venture gaming facility in New Orleans, Louisiana (the "River City Joint
Venture"). Due primarily to unforeseen failure of projected market conditions
which have been widely reported to have severely and negatively impacted the
entire New Orleans riverboat and land-based gaming industry, and to stem
operating losses, the Company terminated CCCD's operations in June 1995 and
the River City Joint Venture was terminated in July 1995. On July 28, 1995,
CCCD consented to the entry of an order for relief under Chapter 11 of the
U.S. Bankruptcy Code (the "CCCD Reorganization Case") and sought a purchaser
for this discontinued operation.

         CCCD filed a plan of reorganization under Chapter 11 of the Bankruptcy
Code (the "Bankruptcy Code") on October 13, 1995. On January 12, 1996, CCCD's
plan of reorganization was confirmed (the "January CCCD Plan of
Reorganization"). The January CCCD Plan of Reorganization was predicated upon an
agreement (the "MRI Agreement") between the Company and with Mirage Resorts,
Inc. ("Mirage") for the sale of CCCD to Mirage for $55 million plus the
assumption of certain equipment financing liabilities of up to $6.5 million. The
sale to Mirage was contingent upon certain waivers and conditions being achieved
on or before January 24, 1995, including, but not limited to, receiving all
requisite regulatory approvals to transfer the operator's license. On January
24, 1996, Mirage announced that conditions to the closing of the purchase were
not satisfied by the contractual deadline and terminated the MRI Agreement.
Although the Louisiana State Police determined on January 23, 1996 that Mirage
was suitable to hold an operator's license, the Louisiana Riverboat Gaming
Commission deferred action on the matter indicating that it needed more time to
rule on the proposed change of berth and transfer of the license from Orleans
Parish, Louisiana to Bossier Parish, Louisiana. As a consequence of the
termination of the MRI Agreement, management believed that it was in the best
interests of the Company, its senior secured noteholders and its shareholders,
to immediately pursue other alternatives for the sale of CCCD's assets.

                                      8
<PAGE>


         On February 21, 1996, the Company entered into a stock purchase
agreement (the "CMC Agreement") with Casino Magic Corp. ("CMC"), two of CMC's
wholly-owned subsidiaries, and CCCD to transfer the ownership of CCCD and
substantially all of its assets to a wholly-owned subsidiary of CMC. An Amended
Plan of Reorganization (the "Amended CCCD Plan of Reorganization") predicated
upon consummation of the CMC Agreement was confirmed by the bankruptcy court
overseeing the CCCD Reorganization Case and an order of confirmation was entered
on April 29, 1996. On May 13, 1996, the Company completed the sale of CCCD to a
wholly-owned subsidiary of CMC for an aggregate purchase price of $56.5 million,
consisting of $15 million cash, $35 million in Purchaser's Notes and the
assumption of up to $6.5 million in certain equipment liabilities. The cash and
Purchaser's Notes paid by CMC's wholly-owned subsidiary as the purchase price
for CCCD were distributed in accordance with the provisions of the Amended CCCD
Plan of Reorganization. In connection therewith, $7 million in cash and $28
million in Purchaser's Notes were distributed to First Trust National
Association (now Known as U.S. Bank Trust National Association), the indenture
trustee ("Indenture Trustee") on account of the Company's 11.5% Senior Secured
Notes due in 2001 (the "Old Senior Secured Notes"). The Amended CCCD Plan of
Reorganization also provided for the distribution to CCCD's unsecured creditors
of the proceeds of all of CCCD's remaining assets not sold to CMC.

         On July 29, 1996, the Indenture Trustee for the Old Senior Secured
Notes distributed $49,986,000 in cash and Purchaser's Notes to the holders of
the Old Senior Secured Notes on account of principal and accrued interest (the
"Noteholder Distribution"). The Noteholder Distribution included $28 million
in Purchaser's Notes, as well as cash from the sale of CCCD to CMC, proceeds
from the early payment of a Tribal development loan, proceeds from the buyout
of a management contract, $3.2 million in unused restricted cash and other
sources. Subsequently, in August 1996, the Purchaser's Notes were redeemed by
CMC at 100% of the principal amount plus accrued interest.

         Reorganization of the Company

         As a result of the CCCD Reorganization Case, on June 13, 1995, the
Indenture Trustee notified the Company of the occurrence of certain events of
default ("Events of Default") under the Indenture with respect to the Old Senior
Secured Notes (the "Old Indenture"). The Old Senior Secured Notes were
guaranteed by CGMI and CCCD. The Event of Default cited by the Trustee related
to the assertion of various claims of creditors against Collateral (as defined
in the Old Indenture), which was pledged to secure repayment of the Old Senior
Secured Notes. In addition, on June 13, 1995, the Trustee also notified First
National Bank of Commerce ("FNBC"), the Company's Collateral Agent, that FNBC
could not make further disbursements from cash collateral accounts established
pursuant to the Old Indenture until directed by the Trustee. Additionally, the
Company failed to make interest payments on its Old Senior Secured Notes of
$7,302,500 each on August 1, 1995, February 1, 1996 and August 1, 1996, and a
$1,350,000 consent fee payment which was due to the holders of the Old Senior
Secured Notes on August 1, 1995, which also constituted Events of Default under
the Old Indenture.

         In order to restructure the Old Senior Secured Notes, pursuant to
negotiations with a steering committee ("Noteholders Steering Committee")
representing more than two-thirds of the holders of the Old Senior Secured
Notes, the Company filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
New Jersey (the "Bankruptcy Court") on December 23, 1996 (the "Petition Date").
The petition did not involve the Company's wholly-owned subsidiaries. The
Company operated as a debtor-in-possession until March 19, 1997 when its Plan
of Reorganization (as defined below) was confirmed by the Bankruptcy Court. As
a debtor-in-possession, the Company was authorized to operate its business but
could not engage in transactions outside its ordinary course of business
without the approval of the Bankruptcy Court.

         Subject to certain exceptions under the Bankruptcy Code, the
Company's reorganization proceedings automatically enjoined the continuation
of any judicial or administrative proceedings against the Company. Any
creditor actions to obtain possession of or control over property of the
Company or to create, perfect or enforce any lien against the property of the
Company were also enjoined. As a result, the creditors of the Company were
precluded from collecting pre-petition debts without the approval of the
Bankruptcy Court.

                                      9
<PAGE>

         On the Petition Date, the Company filed a pre-negotiated Plan of
Reorganization (together with all subsequent amendments and modifications, the
"Plan of Reorganization"), and an accompanying disclosure statement (together
with all subsequent amendments and modifications, the "Disclosure Statement").
The Disclosure Statement was approved by the Bankruptcy Court on February 6,
1997.

         On March 19, 1997, the Bankruptcy Court conducted a hearing regarding
confirmation of the Plan of Reorganization and entered an order confirming the
Plan of Reorganization submitted by the Company as modified by that order. As
contemplated by the Plan of Reorganization, on May 28, 1997 (the "Effective
Date"), the Company emerged from Chapter 11 and consummated the Plan of
Reorganization.

         The Plan of Reorganization provides for the continuation of the
Company. Under the Plan of Reorganization, on the Effective Date the
outstanding common stock of the Company (the "Old Common Stock") and the Old
Options (as hereinafter defined) were cancelled and the Company, as
reorganized, issued 2,000,000 shares of its new common stock, no par value
(the "New Common Stock"), some of which is being held by the transfer agent
subject to distribution under the Plan of Reorganization. The New Common Stock
will be distributed pursuant to the terms of the Plan of Reorganization.

         The Plan of Reorganization provides generally that creditors of the
Company are to receive distributions as follows: (i) holders of Old Senior
Secured Notes receive in the aggregate (A) on account of their Allowed Secured
Claims (as defined in the Plan of Reorganization), their Pro Rata Share (as
defined in the Plan of Reorganization) of the Company's 12% Senior Secured
Notes due 2001 (the "New Senior Secured Notes") having a principal face amount
of $21.45 million and 1,225,000 shares of the New Common Stock, and (B) on
account of their unsecured Deficiency Claims (as defined in the Plan of
Reorganization) totaling $80,688,850, the same treatment as is afforded to
holders of General Unsecured Claims (see subparagraph (iii) below); (ii)
holders of Secured Claims (as defined in the Plan of Reorganization) that are
not Claims (as defined in the Plan of Reorganization) arising out of Old
Senior Secured Notes receive, at the option of the Company: (X) such treatment
as will leave such holder unimpaired; (Y) payment in full, in cash; or (Z)
return of such holder's collateral in the possession of the Company; and (iii)
holders of General Unsecured Claims against the Company received their pro
rata shares of (A) 525,000 shares of New Common Stock; (B) the right to
receive the net proceeds of Avoidance Actions (as defined in the Plan of
Reorganization) recovered pursuant to the Plan of Reorganization; and
$1,100,000 in New Senior Secured Notes. With respect to Class 4 Claims (as
defined in the Plan of Reorganization), the trustee with respect to the
Amended Indenture (the "Amended Indenture Trustee") could receive no more than
375,000 shares of New Common Stock and $550,000 in New Senior Secured Notes on
account of its allowed Class 4 Claim, and any shares the Amended Indenture
Trustee would otherwise receive on account of its Class 4 Claim in excess of
$550,000 in New Senior Secured Notes is required to be distributed pro rata to
all other holders of Allowed Class 4 Claims. See "Business - Debt After
Reorganization" for a description of the New Senior Secured Notes and
"Business - Capital Structure" for a description of the Company's current
capital structure.

         Holders of the Old Common Stock received their pro rata share of
50,000 shares of New Common Stock. Existing warrants, options and other
rights to acquire Old Common Stock (collectively, the "Old Options") were
cancelled and holders of such Old Options received no distributions of
property on account thereof.

         The Plan of Reorganization provides for the discharge of all claims
against the Company and/or the release from liability only of the Company, its
officers and employees, its wholly-owned subsidiaries and their respective
present and former directors, the Amended Indenture Trustee and the Noteholders
Steering Committee of all liabilities in any way related to the Company. In
addition, a critical element of the Plan of Reorganization is the release by the
Trustee and each of the Noteholders of all of their claims against subsidiaries
of the Company arising out of guaranties and pledges, except for the treatment
of their Claims provided for under the Plan of Reorganization.


                                      10
<PAGE>

         Liabilities Subject to Compromise . Prior to the commencement of the
Company's Chapter 11 case, the Company incurred certain secured and unsecured
obligations. Additional claims arose subsequent to the Petition Date resulting
from the rejection of certain executory contracts and from the allowance by
the Court of contingent and/or disputed claims. Creditors and other parties in
interest filed claims with the Court which were in excess of the amounts
recorded in the Company's records. These differences were related to errors,
duplicative claims and overstatement of claims.

         Debt After Reorganization

         New Senior Secured Notes. Pursuant to the Plan of Reorganization, the
holders of the Old Senior Secured Notes, along with certain unsecured
creditors and key members of management, were entitled to receive New Senior
Secured Notes having an aggregate principal amount of $23.1 million. Interest
on the New Senior Secured Notes accrues at a rate of 12% per annum, and is
payable semi-annually. The New Senior Secured Notes are secured by
substantially all the assets of the Company, including the common stock of
CGMI and CDGC. In addition, the Company's Amended and Restated Senior Secured
Notes Indenture, dated as of March 27, 1997 (the "Amended Indenture") includes
certain restrictive covenants. (See "Description of Amended Indenture".) The
New Senior Secured Notes are redeemable prior to maturity, in whole or part,
at the election of the Company, at the redemption price of 100% of the
principal amount plus accrued and unpaid interest to the redemption date. The
New Senior Secured Notes mature in May 2001. Required principal payments are
as follows:

                  May 28, 2000       $  4,620,000
                  May 28, 2001         18,480,000

Additionally, the Company has been making required semi-annual interest payments
of approximately $1,386,000 since November 15, 1997 and is obligated to make
such interest payments semi-annually until May 2001.

         Description of Amended Indenture. The Amended Indenture governs the
terms of the New Senior Secured Notes. The New Senior Secured Notes are
unconditionally guaranteed pursuant to a Guaranty (the "Guaranty") as to
principal, premium, if any, and interest, on a senior basis, jointly and
severally by all existing and future Subsidiaries (other than CDGC and its
subsidiaries) of the Company (the "Guarantors"). The New Senior Secured Notes
are secured by a lien on substantially all of the assets of the Company and all
existing and future Guarantors. Under certain circumstances, the Collateral (as
defined in the Amended Indenture) may be released from the lien created by the
Amended Indenture and, under other circumstances, additional liens may be
granted on the Collateral.

         The Company is required to offer to purchase New Senior Secured Notes
with the proceeds from asset sales which are deposited in a segregated net
cash proceeds account within 365 days after the date of such asset sale or
when amounts accumulated from such asset sales exceeds $7,500,000, together
with accrued interest to the date of repurchase. The New Senior Secured Notes
and the Guaranty rank pari passu with all existing and future senior
indebtedness of the Company and the Guarantors, respectively, and senior in
right of payment to all subordinated indebtedness of the Company and the
Guarantors, respectively.

         Principal covenants include, among others, maintenance of coverage
ratio, and limitations on: dividends and other restricted payments and
investments, payment restrictions affecting Subsidiaries, transactions with
Affiliates (as defined in the Amended Indenture), consolidations, mergers and
sales of assets, incurrences of additional Indebtedness (as defined in the
Amended Indenture) and Disqualified Capital Stock (as defined in the Amended
Indenture), liens, as well as on lines of business and certain transactions
which must be authorized by the Advisory Committee (as defined in the Amended
Indenture).

         The Amended Indenture contemplates the formation of an advisory
committee ("Advisory Committee") for the purposes of, among other things,
overseeing certain aspects of the Company's operations. The initial members of
the Advisory Committee were selected by the Noteholders Steering Committee and
were approved by the Bankruptcy Court.

         The Company and the Guarantors have covenanted to file, upon request
from the Advisory Committee or the Holders of the New Senior Secured Notes or
the Holders of the New Common Stock, a registration statement under the
Securities Act of 1933 with respect to the New Senior Secured Notes and the New
Common Stock. See "Default under the Amended Indenture."

                                      11
<PAGE>

The Company and the Guarantors also have agreed to use their best efforts to
cause such registration statement to be declared effective by the Securities
and Exchange Commission (the "SEC") within 180 days following such notice.

         Default Under the Amended Indenture

         The Amended Indenture contemplates that certain actions of the Company
require prior notice to (and in certain cases, approval from) the Advisory
Committee, including the ability of the Company to deliver to the Indenture
Trustee a Definitive Budget (as defined in the Amended Indenture). To date, the
Advisory Committee has not been formed, substantially due to the fact that the
Company had been notified by several state gaming regulators in states in which
the Company conducts business that the breadth and scope of the powers granted
to the Advisory Committee in the Amended Indenture require that the proposed
members of the Advisory Committee be licensed by the appropriate various state
gaming regulators.

         On August 7, 1998, the Company was notified by counsel for the
Indenture Trustee of the occurrence of possible events of default ("Events of
Default") under the Amended Indenture with respect to the New Senior Secured
Notes. The alleged Events of Default included, among other things, an alleged
failure by the Company to deliver to the Indenture Trustee a Definitive Budget
(as defined in the Amended Indenture). In light of ongoing good faith
negotiations to amend the Amended Indenture in such a manner as would facilitate
curing any alleged Events of Default, the Indenture Trustee has been directed by
the holders of a majority in principal amount of the New Senior Secured Notes to
forebear, until December 31, 1998 from taking any action, and has not taken any
action to accelerate the New Senior Secured Notes, foreclose on any collateral
or otherwise execute any of its rights under the Amended Indenture.

         The Indenture Trustee, and the holders of a majority in principal
amount of the New Senior Secured Notes and the Company have had good faith
negotiations to resolve the various Events of Default under the Amended
Indenture and all parties have reached agreement in principle as to a Second
Amended and Restated Indenture which would resolve any Events of Default. On
October 23, 1998 the Company and the Indenture Trustee filed a Joint Motion for
an Order approving modifications of the Plan of Reorganization with the
Bankruptcy Court (the "Motion"). The Motion provides, in pertinent part, (i) the
Amended Indenture will be revised to eliminate the Advisory Committee, (ii)
certain majority holders will elect to hold their equity distributions in a
voting trust with the Company's new Chairman, Charles B. Brewer, acting as
voting trustee, (iii) for the amendment of the Company's Articles of
Incorporation and By-laws to provide for two classes of Common Stock (Common
Stock and Class A Common Stock), identical in all respects except that Class A
Common Stock will have the right to elect a controlling number of Board members
and will be distributed to the holders of Old Senior Secured Notes on account of
their Allowed Secured Claims (as defined in the Plan of Reorganization), and
(iv) that the Amended Indenture will be revised with respect to the mechanisms
by which Excess Cash (as defined in the Amended Indenture) is deposited in the
cash collateral account held by the Indenture Trustee. A hearing on the Motion
has been set for November 16, 1998. Once implemented, the revisions to the
Amended Indenture will definitively cure any alleged Events of Default. The
Amended Indenture Trustee, the majority noteholder and the Company believe it is
reasonably probable that the Events of Default will be cured on or before
December 31, 1998.

        As per the terms of the Amended Indenture, the Company made an interest
payment of $1,285,900 on November 12, 1997, and an interest payment of
$1,386,000 on May 15, 1998.

         Capital Structure Prior To The Reorganization

         Preferred and Common Stock. Prior to the Effective Date, the Company
had authorized 5 million shares of preferred stock (the "Old Preferred
Stock"), of which none were issued. The Old Common Stock of the Company
consisted of 75 million authorized shares of which approximately 19.0 million
shares were outstanding immediately prior to the Effective Date. All Old
Common Stock and Old Preferred Stock were cancelled on the Effective Date.

         Capital Structure Following the Reorganization

         The Plan of Reorganization provided for the amendment and restatement
of the Company's Certificate of Incorporation (the "Certificate of
Incorporation") and bylaws. The Certificate of Incorporation authorizes 3.2
million shares of New Common Stock. On the Effective Date, 1,866,667 shares of
New Common Stock were issued to the Company as the disbursing agent under the
Plan of Reorganization. The New Common Stock will be distributed to various
classes of creditors pursuant to the terms of the Plan of Reorganization. In
addition, the Company's executive management became entitled to receive a total
of 66,667 shares of common stock on the Effective Date and an additional 66,667
shares on the one year anniversary date following the Effective Date. As of June
30, 1998, the Company had not allocated such shares among executive management.
Also on the Effective Date, 133,333 shares were reserved to be issued to
executive management pursuant to the Plan of Reorganization over the two-year
period after the Effective Date. Executive management will be entitled to
receive the remaining 66,666 shares on the second anniversary of the Effective
Date.

                                       12
<PAGE>

         Stock Option Plan

         Pursuant to the Plan of Reorganization, the Company cancelled all of
its existing stock options and adopted the 1997 Stock Option Plan (the "Stock
Option Plan") covering 200,000 shares of the New Common Stock, pursuant to which
officers, directors, consultants of, or other people rendering services to the
Company or its subsidiaries are eligible to receive incentive and/or
non-qualified stock options. With respect to any option granted to any employee
who was employed by the Company prior to the Effective Date of the Plan of
Reorganization no more than 100,000 of the shares authorized under the Stock
Option Plan may be awarded. The Stock Option Plan expires in March 2007.
Incentive stock options granted under the Stock Option Plan to employees who are
not 10% owners are exercisable for a period of up to ten years from the date of
the grant at an exercise price of $1.75 or such lesser amount approved by the
Company's noteholders advisory committee. The exercise price may be adjusted
subject to certain recapitalization provisions of the Stock Option Plan.
Incentive stock options granted under the Stock Option Plan to employees who are
10% shareholders are exercisable for a period of up to five years at the same
exercise price provisions. As of June 30, 1998, there were no options granted
under the Stock Option Plan.

Net Operating Loss Carryforwards ("NOLs")
         
         The following description of the Company's net operating loss
carryforwards is based upon management's analysis of the application of the
relevant sections of the Tax Code (as herein defined) to the net operating loss
carryforwards of the Company. There can be no assurance that the Internal
Revenue Service or the courts will agree with management's analysis. There are
substantial risks associated with the Company's utilization of its NOLs. See
"Risk Factors - Net Operating Loss Carryforwards."

         For purposes of this discussion, unless otherwise defined or modified,
the term "Gross NOLs" means the total NOLs reported to the Internal Revenue
Service on the federal income tax returns of the particular taxpayer, before the
application of any reductions and related adjustments described in the following
paragraphs under the heading "Net Operating Loss Carryforwards". Based on its
federal income tax returns for the years through June 30, 1996, the Company and
its subsidiaries reported cumulative Gross NOLs of approximately $107,000,000.
Under Section 172(b) of the Internal Revenue Code of 1986, as amended (the "Tax
Code") and, in effect for those years, unused NOLs expire after fifteen taxable
years from the taxable year of a loss. Because these losses were generated in
1994, 1995 and 1996, they should expire in 2009, 2010 and 2011 respectively.

         For purposes of this discussion, the term "Net NOLs" means the amount
of NOLs of the particular taxpayer for federal income tax purposes adjusted to
reflect reductions and related adjustments required under Tax Code ss. 108 and
Tax Code ss. 382(1)(5), assuming that Tax Code ss. 382(1)(5) applies, but
subject to Internal Revenue Service audits, subsequent changes in the ownership
of the Company and effects under Tax Code ss. 382, and the application of Tax
Code Sections 269 and 384. See "Net Operating Loss Carryforwards - Application
of Tax Code ss. 382 Under the Chapter 11 Reorganization". After taking into
account the reorganization of the Company pursuant to the Plan of Reorganization
and assuming that Tax Code ss. 382(1)(5) applies as described in more detail in
this section "Net Operating Loss Carryforwards", management of the Company
believes the Net NOLs of the Company and its subsidiaries as of June 30, 1998
are approximately $35,214,000, although no assurance can be given that the
Company will be able to utilize these NOLs. See "Risk Factors - Net Operating
Loss Carryforwards".

                                       13
<PAGE>

         Cancellation of Debt Income Under Tax Code ss. 108. Under the Plan of
Reorganization, unsecured indebtedness of the Company with an aggregate face
amount of approximately $110,000,000 was canceled. Generally, Tax Code ss. 108
provides that a debtor whose indebtedness is canceled must include the amount
of canceled indebtedness in gross income to the extent the indebtedness
canceled exceeds any consideration (e.g., cash, notes, stock or other
property) given for the cancellation. Tax Code ss. 108 further provides,
however, that if a taxpayer is the subject of a bankruptcy case and the
cancellation of indebtedness ("COD") is pursuant to a plan approved by the
Bankruptcy Court, the excess amount canceled is not required to be included in
gross income. Instead, any such excess amounts so excluded from gross income
reduce prescribed tax attributes of the debtor, including NOLs and the bases
of the assets of the debtor, in a specified order of priority beginning with
NOLs. Management of the Company believes that approximately $75,500,000 of its
Gross NOLs of approximately $107,000,000 as of June 30, 1996 must be reduced
to take into account cancellation of indebtedness of the Company pursuant to
the Plan of Reorganization.

         Tax Code ss. 382 In General. If a corporation undergoes an "ownership
change", Tax Code ss. 382 limits the corporation's right to use its NOLs each
year to an annual percentage (based on the federal long-term tax-exempt rate
which was 5.64% in May of 1997) of the fair market value of the corporation at
the time of the ownership change (the "Section 382 Limitation"). If an
ownership change under Tax Code ss. 382 is triggered, a corporation may also
be restricted from utilizing certain built-in losses and built-in deductions
recognized during a five-year recognition period after the ownership change. A
corporation is considered to undergo "an ownership change" if, as a result of
changes in the stock ownership by "5-percent shareholders" or as a result of
certain reorganizations, the percentage of the corporation's stock owned by
those 5-percent shareholders has increased by more than 50 percentage points
over the lowest percentage of stock owned by those shareholders at any time
during a prescribed prior three-year testing period. Five-percent shareholders
are persons who hold 5% or more of the stock of a corporation at any time
during the testing period as well as groups of shareholders who are not
individually 5-percent shareholders.

         Application of Tax Code ss. 382 Under the Chapter 11 Reorganization. If
the Company is subject to the Section 382 Limitation as a result of the
consummation of the Plan of Reorganization, its annual Section 382 Limitation
would be equal to the product of the applicable long-term tax-exempt rate
(5.64%) times the fair market value of the equity of the Company immediately
before the ownership change. Thus, for example, if the value of the equity of
the Company as of the Effective Date of the Plan of Reorganization was $400,000,
the Company could only use approximately $23,000 of its NOLs each year until
they expire. Although a 50% ownership change was expected to occur as a result
of the transfer of stock of the Company to creditors pursuant to the Plan of
Reorganization, an exception under Tax Code ss. 382(1)(5) is believed by
management to have applied as described as follows. Tax Code ss. 382(1)(5)
provides that the Section 382 Limitation will not apply to a loss corporation if
(1) the corporation, immediately before the ownership change, is under the

                                      14
<PAGE>

jurisdiction of a court in a United States Code Title 11 or similar case, and
(2) the shareholders and creditors of the old corporation own at least 50% of
the total voting power and value of the stock of the corporation after the
"ownership change" as a result of being shareholders and creditors before the
change. Stock transferred to such creditors counts only if it is transferred
with respect to "old and cold" indebtedness. Indebtedness of creditors
qualifies as "old and cold" if the indebtedness (i) was held by a particular
creditor for at least 18 months before the date of the filing of the Chapter
11 case, or (ii) arose in the ordinary course of the trade or business of the
old loss corporation and was held by the person who at all times held a
beneficial interest in that debt. These requirements will not apply, however,
and thus a loss corporation generally may treat the debt as meeting the
holding period requirement, unless (i) the creditor becomes a 5-percent
shareholder of the loss corporation (directly or indirectly) immediately after
the ownership change, or (ii) such creditor's participation in the formation
of the reorganization plan makes it evident to the debtor that the creditor
has not owned the debt in question for the required period.

         In an attempt to determine the extent to which the indebtedness of
creditors who received stock pursuant to the Plan of Reorganization qualifies as
"old and cold", the Company has obtained corroborative evidence as to the status
of certain creditors including written confirmation of the status of certain
creditors who are receiving New Common Stock. As a result, Management of the
Company believes that sufficient indebtedness of creditors will qualify as "old
and cold" under Tax Code ss. 382(1)(5) so that Tax Code ss. 382(1)(5) will apply
to this ownership change. No assurances, however, can be given that
corroborative documentation obtained by the Company will ultimately sustain such
analysis if challenged.

     Under ss. 382(1)(5), although the Section 382 Limitation does not apply,
the Gross NOLs originally available to the Company must nevertheless be
reduced to the extent of the amount of interest accrued with respect to such
canceled debt during the three taxable years prior to the taxable year of the
"ownership change" and during the taxable year of the "ownership change" (up
to the change date). The Company's management estimates that this Tax Code ss.
382(1)(5) adjustment to the Company's Gross NOLs is approximately $32,000,000.
$35,214,000 of this amount is duplicated as a reduction under Tax Code Section
108, so that if the Company is under Tax Code Section 382(1)(5) the reduction
to NOLs under Tax Code Section 108 would amount to $54,700,000 rather than
$82,000,000. See "Cancellation of Debt Income  Under Tax Code Section 108"
in this Section.

     After taking into account the reductions and related adjustments to the
Gross NOLs under Tax Code ss. 108 and Tax Code ss. 382, assuming that Tax Code
ss. 382(1)(5) applies, management of the Company believes that the Net NOLs of
the Company and its Subsidiaries as of June 30, 1998 are approximately
$35,214,000, subject to Internal Revenue Service audits, subsequent changes in
the ownership of the Company and effects under Tax Code ss. 382, and the
application of Tax Code Sections 269 and 384, which are described below in
this section. See "Risk Factors - Net Operating Loss Carryforwards".

         Tax Code ss. 382 and Subsequent Events and Investors. If Tax Code ss.
382(1)(5) applies to the Company, and a future ownership change under Tax Code
ss. 382 is triggered within two (2) years after the ownership change generated
pursuant to the Plan of Reorganization, the Company would not be allowed to
use any of its NOLs incurred as of that first ownership change. It is
therefore important for the Company to monitor further transfers of New Common
Stock by its 5-percent shareholders and further issuances or redemptions of
Company common stock. Because Tax Code ss. 382 tests whether a 50 percentage
point ownership change has occurred over a three-year testing period, the
Company's capacity to issue more common stock during the three years
subsequent to the Effective Date will be curtailed.


                                      15
<PAGE>
         Certain Transferability Restrictions. In accordance with Section 10
of the Company's Certificate of Incorporation, the Company is imposing certain
transferability restrictions upon its 5-percent shareholders for purposes of
Tax Code ss. 382. These restrictions generally provide that the 5-percent
shareholders shall be prohibited from transferring shares of New Common Stock
without the consent of a designated Tax Advisor (the "Tax Advisor"). The Tax
Advisor shall have no obligation to consent to a transfer unless it determines
that the proposed transfer and any related proposed transfers do not create an
unreasonable risk of loss of, or material limitation on, the Company's use of
its net operating loss carryforwards. In the event that the Tax Advisor is
willing to consent to a transfer of New Common Stock by any one shareholder
subject to transferability restrictions, the other shareholders subject to
equivalent restrictions will be offered the opportunity to engage in a
transfer on a ratable basis. These restrictions generally expire on the
earlier of (i) the date that is two years after the Effective Date, (ii) the
date on which the Company determines that the Plan of Reorganization does not
qualify under Tax Code ss. 382(1)(5), or (iii) the date the Company's Board of
Directors in its reasonable business judgment determines that the restrictions
are no longer necessary.

     Effect of Tax Code ss. 384. Congress adopted Tax Code ss. 384 in 1987 to
prevent a loss corporation from using its pre-acquisition NOLs and net
built-in losses against any net built-in gains of a corporation the control of
which (utilizing an 80% test of Tax Code Section 1504(a)(2)) is acquired by the
loss corporation or whose assets are acquired by the loss corporation in
certain types of reorganizations. The limitation of Tax Code Section 384
applies to built-in gains recognized within the five-year recognition period
after the acquisition date. Tax Code ss. 384 will prevent the Company from
utilizing its NOLs against built-in gains recognized by any acquired companies
(assuming the control test is met) within five years of the acquisition date.

         Effect of Tax Code ss. 269.  Tax Code ss. 269(a) provides that if:

         (1) any person or persons acquire ... directly or indirectly, control
         of a corporation, or
         (2) any corporation acquires ..., directly or indirectly, property of
         another corporation .. the basis of which property, in the hands of
         the acquiring corporation, is determined by reference to the basis in
         the hands of the transferor corporation;

and the principal purpose of such acquisition was the evasion or avoidance of
Federal income tax by securing the benefit of a deduction, credit, or other
allowance which such person or corporation would not otherwise enjoy, then the
Internal Revenue Service may disallow such deduction, credit or other
allowance. Control is defined to mean the ownership of stock possessing at
least 50% of the total combined voting power of all classes of stock entitled
to vote or at least 50% of the total value of shares of all classes of stock
of the corporation.

         Under Treas. Reg. ss. 1.269-3(a), the determination of the purpose
for which an acquisition was made requires a scrutiny of the entire
circumstances in which the transaction or course of conduct occurred, in
connection with the tax result claimed to arise therefrom. It is uncertain
whether the Internal Revenue Service would attempt to apply Tax Code ss. 269
to the transactions provided for under the Plan of Reorganization. Arguably,
the "old and cold" creditors' receipt of Company common stock was a direct
consequence of their having extended credit to the Company. If the Old Secured
Notes of a creditor were acquired by an investor to achieve control of the
Company and thus avoid or evade federal income tax, the Internal Revenue
Service might attempt to apply Tax Code ss. 269 to prevent the Company from
utilizing its NOLs.

Risk Factors

         In addition to other information contained elsewhere in this
document, the reader of this Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 should consider carefully the factors set forth below.

         Net Operating Loss Carryforwards. While management believes that the
Net NOLs of the Company and its subsidiaries are approximately $35,214,000 as
of June 30, 1998 (see "Description of Business - Net Operating Loss
Carryforwards - Application of Tax Code ss. 382 Under The Chapter 11
Reorganization), there are risks that the NOLs may have been significantly
diminished or lost as a result of the cancellation of indebtedness occasioned by
the Plan of Reorganization and possible subsequent transfers of rights to


                                      16
<PAGE>

receive New Common Stock under the Plan of Reorganization to the extent that
Tax Code ss. 382(1)(5) does not apply to the ownership change associated with
the implementation of the Plan of Reorganization. There are also risks
associated with the Company's use of its NOLs to reduce Federal income tax
payments, including the possibility that the Internal Revenue Service may seek
to challenge such use, that the Company may be unable to produce significant
levels of taxable income prior to the expiration of the NOLs and that a
subsequent "change in ownership" of the Company may occur which would cause
the Company to lose all or a substantial portion of the NOLs. Although the
Company has attempted to take steps to restrict transfers of New Common Stock
in order to avoid a future "change in ownership," there can be no assurance
that these steps will be successful. See "Description of Business - Net
Operating Loss Carryforwards" and Consolidated Financial Statements.

         Substantial Indebtedness of the Company; Potential Limited Capacity
to Satisfy Repayment Obligations. As of June 30, 1998, the total amount of
outstanding Company long-term indebtedness was equal to $23,100,000 comprised
of the New Senior Secured Notes. As a result of the Company's indebtedness,
the Company has significant interest and principal repayment obligations, and
substantial cash is required to fulfill these obligations. This level of debt
poses a substantial risk to the holders of the Company's securities, including
the risk that the Company might not generate sufficient cash flow from
existing operations to service the Company's debt and the risk that the
Company could have limited financial capacity to respond to changes in market
conditions, extraordinary or unanticipated capital needs, shortfalls in
projected cash flow from operations or other changes. Because of the amount of
the Company's indebtedness, the Company's financial condition could be
materially adversely affected by a decline in revenues or an increase in
expenses. Additionally, the Company believes it will require new sources of
cash beyond its existing operations in order to fund the final payment of
principal on its New Senior Secured Notes in 2001.

         Expirations of Management Contracts. With the exception of the Pueblo
of Laguna contract, CGMI's management contracts all currently expire in the
first half of the year 2000. The ability of the Company to service its debt is
highly dependent upon the acquisition of new management contracts. There can be
no assurance that the Company will be able to attract a sufficient number of new
management contracts to replace existing ones.

         Need for Additional Financing for the Development of Gaming
Facilities. The development, management and operation of Native American
gaming, other gaming establishments and ancillary and complimentary
businesses is time consuming and capital intensive. Substantial capital is
needed to finance the licensing, development, construction, architectural,
engineering, equipping, legal and accounting fees and operating expenses
associated with the management, development and operation of casino gaming
establishments. It is anticipated that the Company will require significant
additional capital in order to fund future projects, including, without
limitation, the Narragansett project. There can be no assurance that such
financing will be available or, if available, that the terms thereof will be
attractive to the Company. No financing commitments for future capital needs
have been obtained as of the date hereof.

         Need to Comply with Strict Statutory and Regulatory Standards in the
Gaming Industry; Expansion Dependent upon Favorable Regulatory Dispositions.
In order to enter the Native American gaming and other gaming businesses in
new jurisdictions, the Company will be subject to regulation by each state in
which it conducts business, and to a certain extent, federal and Tribal law.
See "Business -- Native American Gaming Operations" and "Business -- Company's
Strategy". In jurisdictions where gaming has recently been legalized, gaming
cannot begin until a licensing and regulatory framework is promulgated and
regulatory commissions are appointed, staffed and funded. The regulatory
framework adopted by any jurisdiction may impose restrictions or costs that
would materially detract from the profitability of gaming operations. The
Company must obtain a gaming license for each location where it will operate
or manage a gaming casino, and each of the Company's officers, directors,
managers and principal shareholders is subject to strict scrutiny and approval
by the gaming commission or other regulatory body of each state in which the
Company may conduct gaming operations. After a gaming license or approval is
obtained by the Company, regulatory authorities have broad powers with respect
to the licensing of casino operations, and may revoke, suspend, condition or

                                      17
<PAGE>

limit the Company's gaming licenses, impose substantial fines and take other
actions, any one of such actions could have a material adverse effect on the
Company's business.

         Congress and the States historically have permitted, restricted and
abolished gaming from time to time depending on prevailing public attitudes.
Congress and the States each have the power to restrict or eliminate gaming at
any time. Any federal or state action to limit Native American or other types of
gaming may have a material adverse effect on the Company. In particular, the
Native American gaming industry has had a limited operating history and there is
uncertainty concerning the future of the industry because of the rapidly
changing and increasingly hostile legal, regulatory and political environment,
as evidenced by the activities of the National Gambling Impact Study Commission.
Further, if new legislation is enacted by Congress further restricting Native
American gaming, it may apply retroactively.

         Gaming operators are typically subject to significant taxes and fees
in addition to normal Federal and state corporate income taxes which do not
apply to other industries. Such taxes and fees are generally in excess of 12%
of gaming revenues, may exceed 25% in some jurisdictions and are subject to
increase at any time. Any material increase in these taxes or fees would
adversely affect the Company. The Company anticipates the payment of
substantial taxes and fees with respect to its existing and future operations.

         Competition. The Native American gaming industry and the gaming
industry as a whole, and businesses which are ancillary or complimentary to
these industries, are highly competitive (See "Business -- Native American
Gaming Competition"). As the Native American gaming and other secondary gaming
industries emerge, the Company expects that new competitors will enter the
market. Some of the competitors of the Company will have more personnel and
substantially greater finances, technology, gaming industry experience,
political experience and other resources than the Company.

         The Company expects substantial competition for new projects as new
companies enter the market and/or industry consolidation creates new
competition. This competition could cause increases in the cost of securing
favorable new projects. The Company's Native American gaming casinos compete
with other forms of gaming, including land-based casinos, other Native
American casinos, riverboat and dockside gaming, bingo and pull-tab games,
pari-mutuel betting on horse racing and dog racing, state-sponsored lotteries
and gaming in bars and truck stops.

         The Native American gaming industry has also experienced significant
growth in the past few years and competition by management companies for
favorable Class II and Class III contracts has increased significantly. In
contrast to the early stages of Native American gaming, well-established
companies in the primary gaming market now compete for a limited number of
Tribal management contracts as opposed to significantly smaller operations which
competed for such contracts a few years ago. As a result of such competition,
new contracts are becoming less lucrative to management companies as Tribes have
more management companies to choose from. Additionally, many of the Company's
competitors have substantially more Native American gaming experience, are
larger and have greater financial resources than that of the Company to fund the
development of new Tribal casinos and attract new management contracts.

         New jurisdictions may legalize various forms of gaming that may compete
with the operations of Company. If other forms of gaming, including casino
gaming, are legalized in additional jurisdictions, existing or future gaming
establishments in which the Company may become involved will compete with these
new forms of legalized gaming. The Company expects that many of its competitors
will have more gaming industry experience, will be larger and will have
significantly greater financial and other resources than the Company. Given
these factors, it is possible that the competition will increase in the casino
gaming industry and that the Company's existing or future operations will not be
profitable.

         Loans to Tribes; Limited Recourse Against Tribes. In general, Native
American Tribes do not make any equity investments in the construction,
development or equipment of casinos. With respect to existing and future
projects, the Company has been or will be required to make loans to Tribes for
all of the costs associated with the construction, development, equipment and
operation of casinos managed and to be managed by the Company. These loans are

                                      18
<PAGE>

not conventional real estate and construction loans subject to customary
mortgages and encumbrances. If the casinos that the Company manages do not
generate sufficient cash flow, the Company's loans will not be repaid.

         Native American Tribes are sovereign nations and are generally immune
from legal proceedings commenced in state or federal courts. Also,
congressional policy has mandated limited liability of Native American Tribes
in such cases. Thus, the Company's only recourse for collection of
indebtedness from a Tribe or money damages for breach or wrongful termination
of a management contract would be from revenues, if any, from casino
operations. Although CGMI and CDGC normally seek and obtain limited waivers of
sovereign immunity from Tribes, these waivers are difficult to enforce,
particularly prior to receipt of NIGC approval of a management contract. In
the event that the Company should make loans to a Native American Tribe, the
Company may be required to subordinate such Tribal loans and other
distributions due the Company from the Tribe to other obligations of the Tribe
related to that casino. Accordingly, in the event of a default by the Tribe,
the Company's loans to that Tribe may not be repaid until the Tribe's senior
creditors have been repaid in full.

         Relationships with Native American Tribes. Native American Tribes are
sovereign nations with their own governmental systems. Tribal officials are
subject to replacement by appointment or election. The Company's relationship
with a Tribe may improve or deteriorate under new administrations. Good
relationships with Native American Tribes and their officials are critical to
the Company's ability to obtain and renew management contracts. A
deterioration in the relationship between the Company and a Tribe would have a
material adverse effect on the Company, including possible termination of
management contracts.

         Tribal/State Compacts. Management contracts and the operation of
casinos on Native American land, including the right to offer certain types of
gaming, are subject to Tribal/State Compacts, the terms of which vary from
state to state, and may vary from Tribe to Tribe within a state. At least 20
states have signed Tribal/State Compacts with Native American Tribes that
permit certain types of casino gaming on Native American land. Changes in
state gaming laws may limit the types of gaming that are eligible for
Tribal/State Compacts. The repeal of any Tribal/State Compact or any amendment
that limits the types of gaming that may be conducted on Native American land
in the state may have a material adverse effect on the Company. Certain states
have resisted entering into or renegotiating existing Tribal/State Compacts,
and Tribal/State Compacts have been the subject of litigation in several
states. The Company cannot predict which states, if any, will allow casino
gaming on Native American land, the timing of any such approvals or whether
the states will attempt to renegotiate such compacts in the future.

         Risks of Construction. Native American gaming and other gaming
projects and ancillary business construction projects which the Company is
expected to undertake entail risks, including delays in construction,
shortages of material or skilled labor, unforeseen engineering and/or
geological problems, including dredging of waterways to facilitate riverboat
casino gaming, work stoppages, weather interference and unanticipated cost
increases. Pursuant to typical construction contracts, the Company may have to
pay certain construction cost overruns. The Company anticipates that expenses
in connection with the dredging of waterways to facilitate riverboat casino
gaming will be substantial depending upon the location and site conditions.
Construction, equipment or staffing problems or difficulties obtaining any of
the requisite licenses, permits and authorizations from regulatory authorities
may delay the construction or opening of casinos which the Company may
develop.

         Native American Gaming Regulation. Gaming on Native American lands is
extensively regulated under federal and state law, Tribal/State Compacts and
Tribal law. The NIGC oversees Class II gaming (essentially bingo and similar
games) and, to a lesser degree, Class III gaming (e.g., slots, casino games
and banking card games). The actual regulation of Class III gaming is
determined pursuant to the terms of Tribal/State Compacts, which govern gaming
on Tribal lands.

         The terms and conditions of management contracts for the operation of
gaming facilities on Native American lands are governed by IGRA, which is
administered by the NIGC. Under IGRA, the NIGC must approve all management
contracts between Native American Tribes and managers of Tribal gaming
facilities.

                                      19
<PAGE>


         Historically, the Secretary of the Interior, acting through the
Bureau of Indian Affairs (the "BIA"), was charged with the review of
management contracts and collateral agreements, such as promissory notes and
security agreements executed in connection with  management contracts. Though
IGRA became law in 1988, the BIA retained approval authority of management
contracts and collateral agreements until February 22, 1993, the effective
date of the regulations regarding the approval of management contracts by the
NIGC.

         The NIGC regulations provide detailed requirements as to certain
provisions which must be included in management contracts, including a term not
to exceed five years except, upon the request of a Tribe, a term of seven years
may be allowed by the NIGC Chairman if the Chairman is satisfied that the
capital investment and income projections for the gaming facility require the
additional time. In connection with the Pueblo of Laguna Contract, there can be
no assurance that the NIGC will approve a term of seven (7) years for the
management agreement. Further, the fee received by the manager of a gaming
facility may not exceed 30% of the net revenues except that a fee of 40% of net
revenues may be approved if the NIGC Chairman is satisfied that the capital
investment and income projections for the gaming facility require the additional
fee.

         In addition, in order for the management agreements to be approved by
the NIGC, the Company, its directors, persons with management responsibilities
and certain of the Company's owners, must provide background information and be
investigated by the NIGC to be found suitable to be affiliated with a gaming
operation. The NIGC regulations provide that each of the ten persons who have
the greatest direct or indirect financial interest in a management contract must
be found suitable in order for the management agreement to be approved by the
NIGC. The NIGC regulations also provide that any entity with a financial
interest in a contract must be found suitable, as must the directors and ten
largest shareholders of such entities in the case of a corporate entity, or the
ten largest holders of interest in the case of a trust or partnership. However,
the Chairman of the NIGC may reduce the scope of information to be provided by
institutional investors. At any time, the NIGC has the power to investigate and
require the finding of suitability of any person with a direct or indirect
interest in a management agreement, as determined by the NIGC. The Company must
pay all fees associated with background investigations by the NIGC.

         The NIGC regulations require that the background information described
above must be submitted for approval within ten days of any proposed change in
financial interest in a management contract. The NIGC regulations do not address
any specialized procedures for investigations and suitability findings in the
context of publicly held corporations. If, subsequent to the approval of a
management contract, the NIGC determines that any of its requirements pertaining
to the management contract have been violated, it may require the management
contract to be modified or voided, subject to rights of appeal. In addition, any
amendments to the management contract must be approved by the NIGC.

         The NIGC regulations provide that a management contract must be
disapproved if the NIGC determines that: (1) any person with a direct or
indirect financial interest in, or having management responsibility for, a
management contract has been convicted of a felony or any misdemeanor gaming
offense; (ii) has engaged in prior activities which make him unsuitable to be
connected with gaming; (iii) is an elected member of a Tribe that is party to
the management contract; or (iv) has provided false statements to the NIGC or
a Tribe or has refused to respond to questions from the NIGC; (2) the
management contractor has attempted to unduly interfere with or influence
Tribal decisions relating to the gaming operation or has failed to follow the
management contract and applicable Tribal ordinances; or (3) a trustee would
not approve the management contract.

         Several bills have been introduced in Congress which would amend IGRA.
If IGRA is amended, it could change the governmental structure and requirements
within which the Tribe could conduct gaming.

         Each of CGMI's Native American gaming management projects is also
regulated by state and/or Tribal gaming commissions. The Company and CGMI have

                                      20
<PAGE>

submitted applications for licenses to manage and finance Native American
gaming operations with the various applicable Tribal and state gaming
commissions for Arizona, Oregon and Washington and have subsequently received
permanent or temporary gaming licenses from each of such Tribes and states,
permitting them to act as managers/financiers of Native American gaming
operations in such states.

         To the best of its knowledge, CGMI is presently in material
compliance with all applicable gaming rules and regulations.

         The Amended Indenture. The Company is subject to certain restrictive
covenants pursuant to the Amended Indenture. The Company is also required to
repurchase the New Senior Secured Notes under certain conditions. See
"Business--Debt After Reorganization--Description of Amended Indenture." 

         Continued Listing on NASDAQ. On June 25, 1997, the New Common Stock
was delisted from the OTC-Electronic Bulletin Board by NASDAQ because there
were no longer any market makers for the New Common Stock. The Company has
contacted and will continue to contact its former market makers to encourage
such entities to submit the necessary documents to NASDAQ to become market
makers of the New Common Stock. There can be no assurance that the Company
will be able to attract a sufficient number of market makers for the New
Common Stock to be relisted on the OTC Electronic Bulletin Board or that
NASDAQ will approve an application by the Company for relisting. As of the
date hereof, there is no established public trading market for the New Common
Stock.

         Dependence Upon Key Personnel. The Company is substantially dependent
upon the experience and abilities of key executives whose experience in gaming
and requisite licensure makes them unique. While the Company has employment
agreements with key executives, the loss of their services could materially
adversely affect the Company.

         Suitability of Associated Persons. The NIGC, state and Tribal gaming
regulatory agencies closely regulate the suitability of persons owning or
seeking to renew an interest in a gaming license or permit. Such suitability
can be adversely affected by persons associated with licensees or permitees.
Additionally, any person or entity having any direct or indirect interests in
the Company or any casino directly or indirectly owned by the Company,
including holders of shares of New Common Stock, the New Senior Secured Notes
or any warrants or options to purchase shares of New Common Stock may be
subject to administrative action, including personal history and background
investigations. The actions of such associated persons over whom the Company
may have no control could jeopardize any licenses held by the Company.

         Repurchase of Securities Relating to Gaming Matters. Persons who
acquire beneficial ownership of the Company's securities may be subject to
certain reporting and qualification procedures established by regulatory
authorities. Such regulatory scrutiny and related limitations could adversely
affect the marketability of the Company's securities. The Amended Indenture
provides that the New Senior Secured Notes may be redeemed by the Company at
par from holders of Senior Secured Notes if the Company believes such action
is required to prevent impairment of a material gaming license and in certain
other circumstances. The Company has amended its Certificate of Incorporation
to provide that if the Company reasonably determines that ownership of its
securities by any person or entity will either preclude, interfere with,
threaten or delay the issuance of or jeopardize the maintenance and existence
of any gaming license or result in the imposition of burdensome terms or
conditions on such license, the Company will have certain rights to repurchase
such securities or to require the sale of such securities. Accordingly, in
certain situations, a holder of such securities could be subject to the risk
of forfeiture or compelled sale.

         Environmental Matters. The Company is subject to certain Federal, state
and local environmental protection, health and safety laws, regulations and
ordinances that apply to non-gaming businesses generally, such as the Clean Air
Act, Clean Water Act, Resource Conservation and Recovery Act, CERCLA,
Occupational Safety and Health Act and similar statutes. To the best of its
knowledge, the Company believes that it is in material compliance with all such
statutes, regulations and ordinances thereunder.

                                       21
<PAGE>
         Bank Secrecy Act. Similar to banks and other financial institutions,
casinos are required to monitor and report currency receipts and disbursements
in excess of a certain limit to the United States Department of the Treasury.
Under amendments recently adopted by the Department of the Treasury, casinos
must obtain and document customer identification data for all currency
transactions above a specified amount. These requirements impose recordkeeping
requirements on the Company which may increase its overall cost of operations.
However, the Company does not believe that such requirements will have a
material adverse impact on the financial condition or operations of the
Company.

Certain Local Regulations.

         The Company must also obtain liquor licenses from state regulatory
agencies for each of its proposed operations. Rules and regulations in this
regard are strict and the loss of such licenses is possible for regulatory
violations. The loss or suspension of a liquor license could significantly
impact a licensee's operations. Local building, health and fire codes and
similar regulations could also impact the Company's operations. Violations of
any of such statutes, codes or regulations could have a material adverse impact
on the financial condition or operations of the Company.

Employees

         The Company and its subsidiaries had 12 employees at fiscal year ended
June 30, 1998.

ITEM 2. PROPERTIES

         CGMI leases 2,646 square feet of office space in Phoenix, Arizona
pursuant to a lease agreement which expires December 31, 2001.

ITEM 3. LEGAL PROCEEDINGS

         Pursuant to the Plan of Reorganization, all legal proceedings against
the Company prior to the Effective Date were settled. As a result there was no
material litigation pending against the Company on June 30, 1998. The Company
is or may become a defendant in pending or threatened legal proceedings in the
ordinary course of business although is not aware of the existence of any
material pending or threatened legal proceedings at this time.

      1. Republic Litigation

         In connection with the consummation of the Company's Plan of
Reogranization, Republic Corporate Services, Inc. ("Republic") is to receive a
distribution on account of its unsecured claims equal to its pro-rata share of
the 150,000 shares of New Common Stock and of $550,000 in New Secured Notes to
be distributed to the holders of Allowed Class 4 Claims other than the Indenture
Trustee. On August 20, 1997 the Arizona Department of Gaming ("ADOG") notified
the Company that ADOG would conduct a background investigation of Republic prior
to issuing a permanent certification to the Company. This notification was
communicated to Republic by the Company and ADOG sent further notification to
Republic on October 5, 1997. In response to ADOG's August 20, 1997 notification,
the Company had notified Republic that a License Event had occurred as defined
in, and pursuant to, the Company's Amended and Restated Certificate of
Incorporation ("Amended Certificate") and that the Company invoked its right to
have Republic's equity securities distributed to an independent trustee and that
the Company further intended to redeem such securities in accordance with the
terms of the Amended Certificate. On November 5, 1997, Republic filed a
Complaint for Declaratory Judgment, Specific Performance and Other Relief with
the U.S. Bankruptcy Court for the District of New Jersey seeking a declaration
that its ownership of equity securities is not a License Event or, in the
alterative, that if such equity ownership is a License Event then, in effect,
Republic's equity securities should be redeemed at $2.38 per share and its New
Secured Notes should be redeemed at par. On April 16, 1998, the Company and
Republic entered into a stipulation of settlement which provides, among other
things, that any equity securities slated for distribution to Republic pursuant
to the Plans will be distributed to a possession trustee and provides that
William S. Papazian, Executive Vice President and General Counsel of the
Company, will maintain all voting rights with respect to such equity securities
pursuant to a Voting Trust until such time as such securities are sold to a
suitable purchaser.

      2. Muckleshoot Litigation

         On January 30, 1998 the Muckleshoot Tribal Gaming Commission summarily
notified the Company that the Company's gaming license had been revoked based on
an assertion that the Company's certification with the Washington State Gambling
Commission ("WSGC") had lapsed. Additionally, on the same date the Muckleshoot
Tribal Council purported to terminate the Company's management contract on
similar grounds. Subsequently, the WSGC had notified the Muckleshoot Tribe that
the Company remained in good standing with the WSGC and would be immediately
recertified upon request of the Muckleshoot Tribe. Moreover, on April 29, 1998
the WSGC notified the Company that it had been recommended for the issuance of a
gaming license and such license was subsequently issued.

                                       22
<PAGE>
         In response to the termination of the contract, the Company commenced
litigation in the U.S. District Court in the Western District of Washington at
Seattle, ("U.S. District Court") and asserted, among other things, breach of
contract. On July 20, 1998 the Company and its subsidiary, CGMI, and the
Muckleshoot Tribe achieved an amicable resolution to the legal proceedings as
follows:

         The parties entered into a Joint Stipulation and requested the U.S.
District Court to enter an order of settlement and dismiss with prejudice the
litigation between the parties. The U.S. District Court subsequently entered the
order of settlement.

         Pursuant to the Joint Stipulation, the Company will receive a total of
Three Million Three Hundred Thousand ($3,300,000) Dollars, with One Million
($1,000,000) Dollars (the "Initial Payment") being paid within three days after
the U.S. District Court entered the order of settlement and Two Million Three
Hundred Thousand ($2,300,000) Dollars being paid in equal monthly installments
over the term of twenty four (24) months, commencing August 1, 1998. Such
payments, when fully received, will constitute mutual fulfillment of the
Exclusive Operating Agreement between the Muckleshoot Tribe and the Company
dated April 24, 1995. The U.S. District Court entered the order of settlement
and the Company received the Initial Payment on July 29, 1998. All monthly
installments to date have been timely received.

         See also "Risk Factors - Potential Default Under Amended Indenture".

Reorganization of the Company

         The Company filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
New Jersey on December 23, 1996 (the "Petition Date"). The petition did not
involve the Company's wholly-owned subsidiaries. The Company operated as a
debtor-in-possession until March 19, 1997 when its Plan of Reorganization was
confirmed by the Bankruptcy Court. As a debtor-in-possession, the Company was
authorized to operate its business but could not engage in transactions
outside its ordinary course of business without the approval of the Bankruptcy
Court.

         On the Petition Date, the Company filed its Plan of Reorganization,
and an accompanying disclosure statement (together with all subsequent
amendments and modification, the "Disclosure Statement"). The Disclosure
Statement was approved by the Bankruptcy Court on February 6, 1997.

         On March 19, 1997, the Bankruptcy Court conducted a hearing regarding
confirmation of the Plan of Reorganization and entered an order confirming the
Plan of Reorganization submitted by the Company as modified by that order. As
contemplated by the Plan of Reorganization, on the Effective Date the Company
emerged from Chapter 11 and consummated the Plan of Reorganization.

         For further details on the Company's reorganization and for
information regarding the reorganization of CCCD, a former subsidiary of the
Company, see "Business-Reorganization".

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the fourth quarter of the fiscal year ended June 30, 1998, no
matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Through June 24, 1997, the New Common Stock was eligible for trading on
the OTC-Electronic Bulletin Board. On June 25, 1997, the New Common Stock was
delisted from the OTC-Electronic Bulletin Board by NASDAQ because there were no
longer any market makers for the New Common Stock. There can be no assurance
that the Company will be able to attract a sufficient number of market makers
for the New Common Stock to be relisted on the OTC Electronic Bulletin Board or
that NASDAQ will approve an application by the Company for relisting. As of the
date hereof, there is no established public trading market for the New Common
Stock.

         As of June 30, 1998, there were 283 holders of record of the New Common
Stock.

         The Company is currently authorized under its Certificate of
Incorporation to issue up to 3,200,000 shares of New Common Stock.

         The following table sets forth the range of high and low bid prices
for the Common Stock and Investor Warrants, as reported by the NASDAQ Stock

                                      23
<PAGE>

Market for the periods indicated. The prices set forth below represent quotes
between dealers and do not include commissions, mark-ups or mark-downs, and
may not necessarily represent actual transactions.

         The Investor Warrants were issued in the Company's private placement
financing in February 1994 and were listed on the NASDAQ SmallCap Market on
August 12, 1994. All the Investor Warrants were cancelled pursuant to the Plan
of Reorganization.


                             Common Stock              Investor Warrants
Calendar Quarter              High    Low               High     Low
1995:
     Third Quarter          $0.69    $0.16             $0.23    $0.01
     Fourth Quarter         $0.38    $0.07             $0.06    $0.01

1996:
     First Quarter          $0.30    $0.10             $0.08    $0.02
     Second Quarter         $0.30    $0.13             $0.05    $0.03
     Third Quarter          $0.14    $0.06             $0.05    $0.03
     Fourth Quarter         $0.12    $0.02             $0.07    $0.001

1997:
     First Quarter          $0.08    $0.01             $0.001   $0.001
     Second Quarter*        $0.03    $0.125            $0.02    $0.01

         * -- On June 25, 1997, the New Common Stock was delisted from the
OTC-Electronic Bulletin Board by NASDAQ, accordingly, subsequent balances have
not been updated.

         The Company has never paid and does not presently anticipate the
payment of cash dividends in the foreseeable future. It is the present
intention of the Board of Directors to retain earnings, if any, to provide for
the growth of the Company. Payment of dividends in the future will depend,
among other things, upon the Company's ability to generate earnings, its need
for capital and its financial condition. Additionally, the Company's ability
to pay dividends is limited by the Amended Indenture and applicable state law.

ITEM 6. SELECTED FINANCIAL DATA (1)

         The selected consolidated financial data set forth below for each of
the last five fiscal years ended June 30, is derived from the Company's
consolidated financial statements and notes. Due to the Company's
reorganization, comparisons of 1997 to prior years may be of limited use in
determining operating or other financial trends in the Company's business.
This data should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

                                      24
<PAGE>

IN THOUSANDS, EXCEPT SHARE DATA

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------
                                                    Reorganized          |
                                                      Company                            Prececessor Company
                                          -------------------------------|   ----------------------------------------------
<S>                                             <C>            <C>           <C>        <C>           <C>     
Statement of Operations                        Year           May 29,    |  
Data (1)(2)                                    Ended          1997       |  
                                               June           Through    |  July 1, 1996
                                               30,            June 30,   |  Through     
                                               1998           1997(A)    |  May 28, 1997         Years Ended June 30,
                                                                         |                 ---------------------------------
                                                                         |                  1996        1995         1994(3)  
-------------------------------------------------------------------------|--------------------------------------------------
Gross Revenues                                 $ 8,150           $ 753   |    $ 7,447    $ 7,663     $ 10,637      $ 1,724 
Operating Expenses                              12,881           1,921   |      7,238     14,441      111,908       16,580 
Reorganization Items (Expense)                     --             --     |    (50,805)      (600)        --            --  
Other Income (Expense)                          (2,087)           (168)  |     (6,603)     3,660      (15,605)      (9,312)
(Loss)Income Before Extraordinary Items(4)      (7,154)         (1,351)  |    (44,288)    (4,039)    (116,876)     (23,685)
Loss on Early Extinguishment of Debt               --              --    |     (1,998)       --          --           --        
Gain From Reorganization Items                     --              --    |   (103,464)       --          --           --   
Net (Loss) Income                               (7,154)         (1,351)  |    145,754     (4,039)    (117,709)     (23,784)
-------------------------------------------------------------------------|--------------------------------------------------
Earnings Per Share:(B)                                                   |
Income (Loss) Before Extraordinary Item         ($3.82)         ($0.72)  |        N/A        N/A          N/A          N/A 
Income From Discontinued Operations                --             --     |        N/A        N/A          N/A          N/A   
Gain From Reorganization Items                     --             --     |        N/A        N/A          N/A          N/A 
Net (Loss) Income                               ($3.82)         ($0.72)  |        N/A        N/A          N/A          N/A 
Weighted Average Shares Outstanding(A)(B)    1,872,694       1,866,667   |        N/A        N/A          N/A          N/A 
                                                                         | 
                                                                         |
-------------------------------------------------------------------------|--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>


--------------------------------------------------------------------------------------------------------
                                             Reorganized        |
                                               Company          |
                                          ------------------    |         Predecessor Company
                                            as of June 30,      |            as of June 30,
                                          ------------------    |   ------------------------------------
Balance Sheet Data (1):                    1998        1997     |    1996         1995        1994 (3)      
----------------------------------------------------------------|---------------------------------------
<S>                                      <C>           <C>           <C>          <C>         <C>        
                                                                |
Working Capital (Deficit) (4)            5,991         6,431    |   (118,020)    (143,893)     26,545   
Total Assets                            16,721        25,114    |     60,048       82,977     168,906   
Long-Term Debt (4)                      23,100        23,100    |      --          20,293     150,815   
Total Liabilities                       24,826        26,065    |    160,308      179,199     158,928   
Stockholder's Equity (Deficit)          (8,105)         (951)   |   (100,260)     (96,222)      9,979   
Ratio of Earnings to Fixed Charges          (5)           (5)   |         (5)          (5)        (5)   
----------------------------------------------------------------|---------------------------------------
</TABLE>

(1) As a result of the closure of the River City Joint Venture in 1995 and the
Company's reorganization in 1997, the comparability and informative value of
information reflected in the forgoing selected financial data with respect to
the fiscal years ended June 30, 1997 and 1995 may not be meaningful for the
reader of this Annual Report on Form 10-K for the fiscal year ended June 30,
1998.


                                      25
<PAGE>

(2) Includes non-recurring income of $4,196,000 at June 30, 1995 received by the
Company in connection with discontinued operations.

(3) For the fiscal year ended June 30, 1994, the balance sheet data is
reflective of $159,711,000 in proceeds from the debt and equity offering
received in January 1994.

(4) As a result of the closure of the River City Joint Venture in New Orleans
in June 1995, substantial write-downs of assets cost were recorded
contributing to a significant loss from the closure. The working capital
deficit at June 30, 1996 and 1995 includes the classification of $124,020,000
and $123,377,000 respectively in Senior Secured Notes as current and
$19,000,000 in unsecured notes as current in 1996.

(5) Earnings are inadequate to cover fixed charges.

(A) Commencement of fresh start reporting in connection with the consummation
of the Company's reorganization after the Effective Date. See "Business -
Reorganization" for further details.

(B) The weighted average number of common shares outstanding and net income
per common share for the predecessor company (periods through May 28, 1997
(the Effective Date)) have not been presented because, due to the Company's
reorganization and implementation of fresh-start reporting, they are not
comparable to subsequent periods and are therefore irrelevant. See "Business -
Reorganization" for further details.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Selected Consolidated Financial Data and the Company's Consolidated
Financial Statements and the related notes thereto appearing elsewhere in this
Annual Report on Form 10-K for the fiscal year ended June 30, 1998.

         As a result of the sale of the Company's former unrelated business
and disposal of certain gaming operations as well as the reorganization of the
Company's indebtedness, the comparability and informative value of
year-to-year comparisons may not be meaningful or precise.

Notice Regarding Forward-Looking Statements

         To the extent the information contained in this discussion and
analysis of consolidated financial condition and results of operations and the
information included elsewhere in this Annual Report on Form 10-K for the
fiscal year ended June 30, 1998 are viewed as forward-looking statements, the
reader is cautioned that various risks and uncertainties exist that could cause
the actual future results to differ materially from those inferred by the
forward-looking statements. Words such as "expects", "anticipates", "intends",
"potential", "believes" and similar expressions are intended to identify
forward-looking statements. A discussion of the risk factors regarding the
implementation of the Company's business strategy is set forth in this Annual
Report on Form 10-K in the section entitled "Risk Factors." Failure to
successfully implement this strategy would raise substantial doubt about the
Company's ability to fulfill its principal obligations under its New Senior
Secured Notes. The reader is further cautioned that risks and uncertainties
exist that have not been mentioned herein due to their unforeseeable nature, but
which, nevertheless, may impact the Company's future operations.

Liquidity and Capital Resources

         Sources and Uses of Cash: For the fiscal year ended June 30, 1998, the
Company had a net increase in cash and cash equivalents of $575,000, of which
$3,726,000 was used in Company operating activities, and $4,301,000 was provided
by Company investing activities.

         Operating Activities: Cash flows from operating activities for fiscal 
year 1998 were provided by (i) Native American casino management fees of
approximately 

                                      26
<PAGE>

$8,191,000, and (ii) interest income of $832,000. Signifcant operating activity
balances required to reconcile the Company's GAAP accrual net loss of $7,154,000
to net cash flows used in operating activities include (i) depreciation and
amortization of $3,153,000, (ii) the writedown of $1.3 million in excess
reorganization value (see Footnote [5] to the Consolidated Financial
Statements), (iii) a decrease in Native American management fees and other
receivables of $62,000, (iv) a decrease in interest receivable of $43,000, (v) a
decrease in prepaid expenses and other assets of $185,000, (vi) a decrease in
notes receivable-other of $100,000, (vii) a decrease in officer loans of
$250,000, due to the repayment of the loans in fiscal year 1998 (viii) an
increase in accrued interest receivable of $95,000, and (ix) an increase of
$147,000 for state income taxes payable.

         Significant operating activity cash outflows required to reconcile the
Company's GAAP, accrual net loss to net cash flows used in operating activities
include (i) the payment of $426,000 to a trustee for the benefit of the
creditors of the Old Senior Secured Noteholders, and (ii) a decrease in accounts
payable and accrued expenses of $1,481,000. The decrease in accounts payable and
accrued expenses is primarily attributable to fewer accounts payable outstanding
as of June 30, 1998 due to the confirmation of the Company's Plan of
Reorganization on May 28, 1997 which created a larger accounts payable balance,
and the more timely payment of payables in fiscal 1998.

         Investing Activities: For the year ended June 30, 1998, the Company
provided $4,301,000 in net cash inflows from investing activities. Cash flows
from investing activities were provided by (i) $3,939,000 in repayment of Native
American loans/advances, (ii) increased by $385,000 for a decrease in restricted
funds, and (iii) reduced by $23,000 for purchased furniture, fixtures and
equipment in fiscal 1998.

         Financing Activities: The Company did not have any financing activities
for the fiscal year ended June 30, 1998.

         The Company's source of cash for the next twelve months is expected to
be derived from the receipt of management fees and the receipt of debt service
payments on the Native American loans. The Company received its final debt
service payment in September 1998 on the Umatilla Tribes Casino loan, and the
Company is scheduled to be paid-in-full on the Tonto Apache Casino loan in April
2000. As of June 30, 1998, the Muckleshoot Casino does not have a loan
receivable balance payable to the Company. In the event conditions arise, for
whatever reasons, that cause a reduction or elimination in such sources of cash,
the Company may not be able to continue operations or service its debt.

         On July 24, 1998 CGMI entered into a management and development
agreement with the Pueblo of Laguna to exclusively develop, finance, construct,
operate and manage an interim casino to be located on Interstate 40 on the
Tribe's sovereign reservation lands approximately 45 miles west of Albuquerque,
New Mexico. The proposed 30,000 square foot casino will offer Las Vegas - style
table games, slot machines and poker as well as restaurants, a gift shop and
other ammenities. The management and development agreement, which is subject to
the approval of the National Indian Gaming Commission, provides that CGMI will
receive a management fee of 30% of net profits (as defined) over a term of seven
(7) years from the official date of opening of the casino.

         The Company currently anticipates using a portion of its cash on-hand
to finance certain aspects of the new Pueblo of Laguna Casino Project which is
anticipated to open in the Spring of 1999. Company funds utilized for the Laguna
Project, if any, will be repaid by the Pueblo of Laguna Casino Project over an
anticipated seven year period.

         Capital Requirements. The Company will continue to operate, through
CGMI, the Tonto Apache and Umatilla casinos pursuant to the related management
agreements, installment payments on the Muckleshoot settlement, management fees,
and principal and interest loan repayments from the proposed Pueblo of Laguna
Casino Project. Absent any new developments, these agreements, along with
debt-service payments on the Tribal Loans with Tonto Apache and Umatilla Tribes
and cash and cash equivalents at June 30, 1998 of $4,498,000, will provide the
Company with its only source of cash for the approximately one and one-half
years remaining on the contracts. The Company believes that these sources of
cash coupled with a new and reduced expense budget will exceed the ongoing cash
requirements for all operating expenses and general business development costs
(including the Narragansett and Laguna projects) as well as all interest
payments on the New Senior Secured Notes and principal payments on the New
Senior Secured Notes, with the exception of the final principal payment of
$18,480,000 due May 15, 2001. The Company expects to use any excess cash to fund
new projects, although the realization of excess cash is not assured.

                                       27
<PAGE>



         In order to complete the funding of the construction or acquisition
costs of new projects, excluding the planned Laguna Pueblo Casino anticipated to
open in Spring 1999, and to fund the construction costs of the Narragansett
project, if and when a gaming facility is approved in Rhode Island, it is
anticipated that the Company will require significant additional capital. The
Company believes that should any new projects become available or if the gaming
facility is approved for Rhode Island, the Company will have available funding
through the debt and/or equity markets or alternatively though bank financing,
based on the viability of the individual project(s). This belief is founded on
the Company's past success in developing Class III gaming facilities, the
expertise of its management in the gaming industry and its favorable position of
being currently licensed and/or approved by the NIGC and by several state
jurisdictions. However, there can be no assurance that such financing will be
available, or if available, that the terms thereof will be acceptable or
favorable to the Company. Given the high level of uncertainty concerning the
prospects of new development projects and/or the Narragansett Tribe's ability to
secure a binding compact or approval for non-compacted gaming, no financing
commitments have been obtained as of the date of this filing. Further, the
timing of any new capital requirements cannot be reasonably estimated at this
time.

         The Company believes it will require new sources of cash beyond its
existing operations and currently planned expansion plans in order to fund the
final payment of principal of $18,480,000 on its New Senior Secured Notes due
May 15, 2001.
                                      28

<PAGE>

         Year 2000 Computer Software Compliance

         The Company relies on computer hardware, software and related
technology in the course of its operations, and such technology is utilized by
the Company and its managed casinos for their delivery of products and services.
The Company has preliminarily reviewed its computer systems as well as those of 
its managed casino operations for compliance with the potential hazards of the 
year 2000 computer conversion. Based on this preliminary review, it appears the 
Company and its managed casino operations will be in compliance with year 2000 
protocol prior to the end of the millennium, and that modifications, software or
computer hardware upgrades, or any other procedures required to comply with year
2000 protocol, should primarily be handled by the software and computer system
vendors and/or manufacturers, and that expected costs to the Company are 
currently expected to be immaterial.

         Default Under the Amended Indenture

         The Amended Indenture contemplates that certain actions of the Company
require prior notice to (and in certain cases, approval from) the Advisory
Committee, including the ability of the Company to deliver to the Indenture
Trustee a Definitive Budget (as defined in the Amended Indenture). To date, the
Advisory Committee has not been formed, substantially due to the fact that the
Company had been notified by several state gaming regulators in states in which
the Company conducts business that the breadth and scope of the powers granted
to the Advisory Committee in the Amended Indenture require that the proposed
members of the Advisory Committee be licensed by the appropriate various state
gaming regulators.

         On August 7, 1998, the Company was notified by counsel for the
Indenture Trustee of the occurrence of possible events of default ("Events of
Default") under the Amended Indenture with respect to the New Senior Secured
Notes. The alleged Events of Default included, among other things, an alleged
failure by the Company to deliver to the Indenture Trustee a Definitive Budget
(as defined in the Amended Indenture). In light of ongoing good faith
negotiations to amend the Amended Indenture in such a manner as would facilitate
curing any alleged Events of Default, the Indenture Trustee has been directed by
the holders of a majority in principal amount of the New Senior Secured Notes to
forebear, until December 31, 1998 from taking any action, and has not taken any
action to accelerate the New Senior Secured Notes, foreclose on any collateral
or otherwise execute any of its rights under the Amended Indenture.

         The Indenture Trustee, and the holders of a majority in principal
amount of the New Senior Secured Notes and the Company have had good faith
negotiations to resolve the various Events of Default under the Amended
Indenture and all parties have reached agreement in principle as to a Second
Amended and Restated Indenture which would resolve any Events of Default. On
October 23, 1998 the Company and the Indenture Trustee filed a Joint Motion for
an Order approving modifications of the Plan of Reorganization with the
Bankruptcy Court (the "Motion"). The Motion provides, in pertinent part, (i) the
Amended Indenture will be revised to eliminate the Advisory Committee, (ii)
certain majority holders will elect to hold their equity distributions in a
voting trust with the Company's new Chairman, Charles B. Brewer, acting as
voting trustee, (iii) for the amendment of the Company's Articles of
Incorporation and By-laws to provide for two classes of Common Stock (Common
Stock and Class A Common Stock), identical in all respects except that Class A
Common Stock will have the right to elect a controlling number of Board members
and will be distributed to the holders of Old Senior Secured Notes on account of
their Allowed Secured Claims (as defined in the Plan of Reorganization), and
(iv) that the Amended Indenture will be revised with respect to the mechanisms
by which Excess Cash (as defined in the Amended Indenture) is deposited in the
cash collateral account held by the Indenture Trustee. A hearing on the Motion
has been set for November 16, 1998. Once implemented, the revisions to the
Amended Indenture will definitively cure any alleged Events of Default. The
Amended Indenture Trustee, the majority noteholder and the Company believe it is
reasonably probable that the Events of Default will be cured on or before
December 31, 1998.




                                      29
<PAGE>

RESULTS OF OPERATIONS

Overview

         The following discussion about the Company's results of operations
includes the Company and its subsidiaries, CGMI, and CDGC. It also includes CCCD
until May 23, 1996, the date on which all of the shares of CCCD were sold to a
wholly-owned subsidiary of Casino Magic Corporation. The results of operations
of CCCD for the year ended June 30, 1996, includes its 50% interest in losses of
River City Joint Venture, a general partnership whose other equal partner was
Grand Palais Riverboat, Inc. (then a wholly owned subsidiary of Hemmeter
Enterprises, Inc.).

         On the Petition Date, the Company, apart from its subsidiaries, filed
a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On
the Petition Date, the Company filed its Plan of Reorganization. As
contemplated by the Plan of Reorganization, on the Effective Date, the Company
emerged from Chapter 11 and consummated the Plan of Reorganization.

         On the Effective Date, upon emergence from bankruptcy, the Company
adopted fresh-start reporting as required by American Institute of Certified
Public Accountants ("AICPA") Statement of Position 90-7. Under fresh-start
reporting, all assets and liabilities were restated to reflect their
reorganization value which represents the fair value of the entities under
Reorganization. As a result of adopting fresh-start reporting, the consolidated
financial statements of the Reorganized Company are not comparable with those of
the Predecessor Company prepared before the Effective Date.

         In addition to the Plan of Reorganization, and in furthering its
strategy of reducing operating expenses, the Company's Board of Directors
approved an informal Business Plan for Consolidating Operations (the "Business
Plan"). The Business Plan called for the closure of the Company's New Jersey
headquarters offices and the relocation of the Company's headquarters to its
current Phoenix, Arizona offices, thereby gaining substantial efficiencies of
operations, better communications amongst management and significant
reductions in staffing and administrative costs on a prospective basis.

         As a consequence of the implementation of its Business Plan, and the
resultant consolidation of operations, the Company effected a change in the
method used to distribute operating expenses among the Company and its
subsidiaries. Effective in June 1997, all staffing costs (with the exception of
officers of the Company), selling, and most general and administrative expenses
of the Company are charged to CGMI as the primary operating entity of the
Company. The Company's officers payroll expenses and public company general and
administrative expenses are charged to the Company. CDGC continues to be charged
with the expenses relating to the development of the Narragansett project.
Accordingly, the results of operations for each of the entities of the
reorganized Company are not necessarily comparable to that of the predecessor
Company. As such, the following discussion of the results of operations for
fiscal 1998 as compared to fiscal 1997, and fiscal 1997 as compared to fiscal
1996 is presented on a consolidated basis only.

FISCAL 1998 COMPARED TO FISCAL 1997

         As a consequence of the Company's fresh-start accounting, reporting
for the fiscal year ended June 30, 1997, is accomplished by combining the
results of operations for the Reorganized Company (May 29, 1997 through June
30, 1997) and the Predecessor Company (July 1, 1996 through May 28, 1997).

                                      30
<PAGE>

         The following table sets forth certain key elements of the results of
operations for the combined periods discussed above:

<TABLE>
<CAPTION>
                                                                                |      Reorganized            Predecessor  
                                                                                |         Company               Company    
                                                 Fiscal           Fiscal        |      May 29, 1997 -         July 1, 1996-
                                                  1998           1997 (1)       |     June 30, 1997           May 28, 1997 
<S>                                              <C>          <C>               |      <C>                    <C>          
REVENUES:                                                                       |                                          
     Management Fees                          $ 8,150,000        $8,200,000     |      $  753,000            $ 7,447,000   
                                              -----------       -----------     |      ----------            -----------   
                                                                                |                                          
COSTS & EXPENSES                                                                |                                          
     Salaries, Wages & Related                  3,284,000         2,006,000     |         188,000              1,818,000   
     Native American Develop Costs              2,317,000         2,442,000     |         532,000              1,910,000   
     Professional Fees                          1,380,000         1,856,000     |         469,000              1,387,000   
     General & Administrative                   1,447,000         1,858,000     |         470,000              1,388,000   
     Depreciation & Amortization                3,153,000           997,000     |         262,000                735,000   
     Write-Down of Excess Reorganization                                        |                                          
      Value                                     1,300,000                --     |              --                     --   
                                               ----------        ----------     |      ----------             ----------   
TOTAL COSTS & EXPENSES                         12,881,000         9,159,000     |       1,921,000              7,238,000   
                                               ----------        ----------     |      ----------             ----------   
                                                                                |                                          
(LOSS) INCOME FROM OPERATIONS                  (4,731,000)         (959,000)    |      (1,168,000)               209,000   
                                                                                |                                          
                                                                                |                                          
REORGANIZATION ITEMS (EXPENSE)                         --        50,805,000     |            --               50,805,000   
                                                                                |                                          
OTHER INCOME (EXPENSE)                                                          |                                          
       Interest Income                            798,000           958,000     |          83,000                875,000   
       Interest Expense                        (2,885,000)       (8,093,000)    |        (251,000)            (7,842,000)  
       Gain on Disposal of River                                                |                                          
         Boat Gaming Facility                          --           364,000     |              --                364,000   
                                               ----------        ----------     |      ----------             ----------   
(LOSS) INCOME BEFORE INCOME TAX                (6,818,000)       43,075,000     |      (1,336,000)            44,411,000   
                                               ----------        ----------     |      ----------             ----------   
PROVISION FOR INCOME TAX                         (336,000)         (138,000)    |         (15,000)              (123,000)  
                                               ----------        ----------     |      ----------             ----------   
(LOSS) INCOME BEFORE                                                            |                                          
       EXTRAORDINARY ITEMS                     (7,154,000)       42,937,000     |      (1,351,000)            44,288,000   
                                               ----------        ----------     |      ----------             ----------   
EXTRAORDINARY ITEMS:                                                            |                                          
       Loss on Early Extinguishment                                             |                                          
         of debt                                     --          (1,998,000)    |          --                 (1,998,000)  
                                                                                |                                          
       Gain from Reorganization                      --         103,464,000     |          --                103,464,000   
                                               ----------       -----------     |      ----------            -----------   
NET (LOSS) INCOME                             $(7,154,000)     $144,403,000     |     $(1,351,000)          $145,754,000   
                                               ==========       ===========     |      ==========            ===========   
</TABLE> 
 
(1) Reorganized Company and Predecessor Company combined.

Revenues

         Revenues for the years ended June 30, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>


                                        Fiscal Year         Fiscal Year
                                           Ended               Ended   
                                         06/30/98            06/30/97            Variance $         Variance %
                                         --------            --------            ----------         ----------
<S>                                     <C>                <C>                    <C>                  <C>  
Revenues
   Tonto Apache Management Fees         $2,276,000         $2,055,000           $  221,000             10.8%
   Umatilla Management Fees              4,754,000          3,866,000              888,000             23.0%
   Muckleshoot Management Fees           1,120,000          2,268,000           (1,148,000)           (50.6)%
   Other                                         0             11,000              (11,000)          (100.0)%
                                       -----------         ----------           ----------           ------ 

   Total Revenues                       $8,150,000         $8,200,000           $  (50,000)              0.6%
                                       -----------         ----------           ----------           ------ 

</TABLE>

                                       31
<PAGE>
         Total revenues for fiscal year 1998 were $8.15 million, a $50,000
decrease from fiscal 1997's total revenues of $8.2 million. This decrease in
revenues is primarily attributable to the decrease in revenues at the
Muckleshoot Casino due to the Muckleshoot Contract dispute which commenced in
December 1997 and which was settled in July 1998, as further described in Item
3. Legal Proceedings. The revenue increases at the Tonto Apache and Umatilla
Casinos is due to better slot management, increased marketing and promotional
events, and greater traffic flows.

Costs and Expenses

         Salaries and wages increased approximately $1.28 million, or 63.7% in
fiscal 1998 as compared to fiscal 1997. This increase is primarily attributable
to (i) salary increases for officers and staff, (ii) certain one time payments
for retiring employees paid during fiscal 1998, (iii) new officer and staff
appointments made in fiscal 1998, and (iv) changes to the Company's benefit
programs.
                                              
         Native American Development costs decreased $125,000, or 5.1% from
$2.44 million in fiscal 1997 to $2.32 million in fiscal 1998. The preponderance
of Native American development costs were for the benefit of the Narragansett
Indian Tribe in Rhode Island in their furtherance of obtaining an approved
gaming Compact as described in footnote [4] of the Company's consolidated
financial statements contained herein. The nominal decrease in expenditures is
due to decreased legal expenditures associated with the Narragansett Indian
Tribe's attempt to further their position toward an approved Compact.

         Professional fees decreased $476,000, or 25.6% in fiscal 1998,
decreasing from approximately $1.86 million in fiscal 1997 to $1.38 million in
fiscal 1997. The decrease in legal expenses is primarily attributable to reduced
legal activity of the Company following the Company's emergence from Chapter 11
Bankruptcy and consummation of its Plan of Reorganization.

         General and Administrative expenses decreased approximately $400,000,
from approximately $1.86 million in fiscal 1997 to $1.45 million in fiscal 1998.
This 22.1% decrease is due to reduced expenses associated with the streamlining
of the Company's operations after the comsummation of the Plan of
Reorganization, including the consolidation of all office functions to Phoenix,
Arizona, as well as the Company's overall efforts to control expenses.

         Depreciation and amortization increased approximately $2.2 million in
fiscal 1998, a 216% increase from the $997,000 balance in fiscal 1997. The
increase in depreciation and amortization expenses is primarily due to
amortization of excess reorganization costs capitalized at the time of
consummation of the Company's Plan Reorganization on May 27, 1997. A total of
approximately $9.8 million in excess reorganization value was originally
capitalized, and is being amortized over a 48 month period ending in May 2001.


         On June 30, 1998, the Company recorded a non-cash impairment loss of
$1.3 million related to the writedown of the Company's excess reorganization
value in accordance with Statement of Accounting Standards No. 121 --
"Accounting for the Imparement of Long-Lived Assets and for Long-Lived Assets to
be disposed of." The excess reorganization value was written down to its
estimated fair market value based on the Company's discounted operating cash
flows anticipated to be earned through May 2001, the end of the assets'
estimated life. The remaining net unamortized value of the excess reorganization
value will be amortized over the remaining 35 months of the assets' useful life
(see footnote [5] to the Company's consolidated financial statements contained
herein).

Reorganization Items 

         Reorganization adjustments included in Reorganization Items for the
year ended June 30, 1997 were comprised of:

         Legal Professional Fees                   $(1,716,000)
         Interest Income                                30,000
         Write-off of Goodwill                        (405,000)
         Excess Reorganization Value                 9,265,000
         Adjustments to Capital Stock               37,217,000
         Adjustment to Paid in Capital               7,877,000
         Reorganization Fees                        (1,463,000)
                                                   -----------
               Total                               $50,805,000
                                                   ===========

         Reorganization fees paid to management included in Reorganization
Items amounted to $1,463,000 for the year ended June 30, 1997. According to
the Plan of Reorganization, this was comprised of (i) $900,000 from the
discontinuance and sale of the riverboat operation in New Orleans, (ii)
$550,000 in New Senior Secured Notes, and (iii) $13,000 in New Common Stock
grants.
                                       32
<PAGE>

Other Income and Expense Items

         Interest income declined $160,000 in fiscal 1998, or 16.7% from the
$958,000 balance earned in fiscal 1997. The decreased in interest income is
primarily attributable to less interest income being earned on the Native
American loans receivable, as the principal balances on these loans is amortized
down.

         Interest expense for the fiscal year ended June 30, 1998 is composed of
the following: (i) interest expense on the New Senior Secured Notes Due May 15,
2001 of $2,767,000, and (ii) Interest expense payable for professional services
associated with the Naragansett Casino development of $118,000.

         Interest expense for the fiscal year ended June 30, 1997 is composed of
the following: (i) Old Senior Secured Notes - $5,929,000, (ii) New Senior
Secured Notes - $251,000, (iii) amortization of original issue discount and
deferred finance charges - $813,000, (iv) Republic Note Payable - $1,050,000
and, (v) COMI equipment notes - $50,000.

         The gain on the disposal of the riverboat gaming facility of $364,000
represents a gain recorded by the Company in the period ended May 28, 1997 for
an adjustment to the carrying value of liabilities related to the sale of CCCD
(see footnote [1] to the consolidated financial statements contained herein).

Provision for Income Tax Expense

         As discussed in "Business - Net Operating Loss Carryforwards",
management of the Company believes that the Company and its subsidiaries possess
Net NOLs as of June 30, 1998 of approximately $35,214,000 for federal income tax
reporting purposes after taking into account the reorganization of the Company
pursuant to the Plan and assuming that Tax Code ss. 382(1)(5) applies, although
no assurance can be given that the Company will be able to utilize these NOLs.
See "Risk Factors - Net Operating Loss Carryforwards". For financial statement
reporting purposes, a deferred tax benefit with respect to such NOLs could not
be recorded on the balance sheet of the Company because any realization of the
NOLs cannot be assured at this time and the amount cannot be estimated.

         Income taxes for each of fiscal years 1998 and 1997 are for state
income taxes liabilities incurred in the various state jurisdictions in which
the Company operates. The increase in state income taxes of approximately
$200,000 or 144% in fiscal 1998, from $138,000 in fiscal 1997, is primarily due
to greater net income of GGMI.

Extraordinary Items

         The loss on early extinguishment of debt of $1,998,000 for the year
ended June 30, 1997, represents the accelerated write-off of original issue
discounts and deferred finance charges on the Old Senior Secured Notes due to
the closure and sale of the Company's riverboat operations.

         The gain from reorganization items of $103,464,000 for the year ended
June 30, 1997 is composed of the following:


    Write-off Deferred Finance Costs and Original 
      Issue Discounts                                            $  (4,311,000)
    Record New Notes in exchange for old debt                      (23,100,000)
    Record New Notes issued to management included in 
      Reorganization Items                                             550,000
    Reduce Liabilities Subject to Compromise to zero               130,325,000
                                                                  ------------
    Total                                                         $103,464,000
                                                                  ============


FISCAL 1997 COMPARED TO FISCAL 1996

         As a consequence of the Company's fresh-start accounting, reporting
for the fiscal year ended June 30, 1997, is accomplished by combining the
results of operations for the Reorganized Company (May 29, 1997 through June
30, 1997) and the Predecessor Company (July 1, 1996 through May 28, 1997).

                                      33
<PAGE>

         The following table sets forth certain key elements of the results of
operations for the combined periods discussed above:

<TABLE>
<CAPTION>
                                                                  
                                                 Reorganized         Predecessor     |           Predecessor      
                                                   Company             Company       |              Company        
                                                May 29, 1997 -      July 1, 1996-    |      Fiscal              Fiscal
                                                June 30, 1997        May 28, 1997    |     1997 (1)              1996
<S>                                                <C>               <C>                   <C>                   <C>
REVENUES:                                                                            |
     Management Fees                             $   753,000        $  7,447,000     |   $  8,200,000        $  7,663,000
                                                 -----------        ------------     |   ------------        ------------ 
COSTS & EXPENSES                                                                     | 
     Salaries, Wages & Related                       188,000           1,818,000     |      2,006,000           2,862,000
     Native American Develop Costs                   532,000           1,910,000     |      2,442,000           1,899,000
     Professional Fees                               469,000           1,387,000     |      1,856,000           1,795,000
     General & Administrative                        470,000           1,388,000     |      1,858,000           2,034,000
     Depreciation & Amortization                     262,000             735,000     |        997,000             940,000
                                                 -----------        ------------     |   ------------        ------------ 
TOTAL COSTS & EXPENSES                             1,921,000           7,238,000     |      9,159,000          14,441,000
                                                 -----------        ------------     |   ------------        ------------ 
(LOSS) INCOME FROM OPERATIONS                     (1,168,000)            209,000     |       (959,000)         (6,778,000)
                                                                                     |
                                                                                     |
REORGANIZATION ITEMS (EXPENSE)                          --            50,805,000     |     50,805,000            (600,000)
                                                                                     |
OTHER INCOME (EXPENSE)                                                               |
       Interest Income                                83,000             875,000     |        958,000           1,959,000
       Interest Expense                             (251,000)         (7,842,000)    |     (8,093,000)        (19,062,000)
       Gain on Disposal of Riverboat                                                 |
         Gaming Facility                                  --             364,000     |        364,000                  -- 
                                                 -----------        ------------     |   ------------        ------------ 
(LOSS) INCOME BEFORE INCOME TAX                   (1,336,000)         44,411,000     |     43,075,000          (3,718,000)
                                                 -----------        ------------     |   ------------        ------------ 
PROVISION FOR INCOME TAX                             (15,000)           (123,000)    |       (138,000)           (321,000)
                                                 -----------        ------------     |   ------------        ------------ 
(LOSS) INCOME BEFORE                                                                 |
       EXTRAORDINARY ITEMS                        (1,351,000)         44,288,000     |     42,937,000          (4,039,000)
                                                 -----------        ------------     |   ------------        ------------ 
EXTRAORDINARY ITEMS:                                                                 |
       Loss on Early Extinguishment                                                  |
         of debt                                      --              (1,998,000)    |     (1,998,000)               --
                                                                                     |
       Gain from Reorganization                       --             103,464,000     |    103,464,000                --
                                                 -----------        ------------     |   ------------        ------------ 
NET (LOSS) INCOME                                $(1,351,000)       $145,754,000     |   $144,403,000        $ (4,039,000)
                                                 ===========        ============     |   ============        ============ 
</TABLE>                                                           


(1) Reorganized Company and Predecessor Company combined.      
                                                                        
Loss From Operations                                                       
                                                                           
         Loss from operations for the year ended June 30, 1997 amounted to  
$959,000 as compared to $6,778,000 for the year ended June 30, 1996, a      
decrease of $5,819,000 or 85.6%. This decrease in loss from operations is   
comprised of (i) an increase in revenues of $537,000, (ii) a decrease in
operating expenses of $379,000 and (iii) reduction in the costs of the
riverboat operations of $4,903,000.

         The loss from operations of the Reorganized Company was $1,168,000
for the period May 29, 1997 to June 30, 1997. This loss includes certain
one-time charges, accruals and reserves of about $1,255,000 relating to
professional fees, Plan implementation costs, development costs, office
consolidation, insurance costs and taxes.


                                      34
<PAGE>
Revenues

         Revenues for the year ended June 30, 1997, comprised primarily of
CGMI's management fees from the Company's three managed Class III gaming
facilities amounted to $8,200,000, an increase of $537,000 or 7.0% over the
year ended June 30, 1996. The following table sets forth the comparison
between Fiscal 1997 and Fiscal 1996 by facility:
<TABLE>
<CAPTION>

Facility                                1997                  1996               Inc(Dec)                %
<S>                                     <C>                 <C>                  <C>                  <C>
Cow Creek                                       0             618,000               (618,000)         (100.0%)
Muckleshoot Casino                      2,360,000           2,038,000                322,000            15.8%
Muckleshoot Bingo                         (92,000)           (197,000)               105,000            53.3%
Tonto Apache                            2,055,000           1,961,000                 94,000             4.8%
Umatilla                                3,866,000           3,210,000                656,000            20.4%
Miscellaneous                              11,000              33,000                (22,000)          (66.7%)
</TABLE>
         Note: Revenues for Cow Creek are through August 1995 and for
Muckleshoot Bingo are through September 1996

         The increase in management fees is due primarily to the strong
financial performance of each of Company's managed facilities. In comparison
to Fiscal 1996, Fiscal 1997 total revenues were higher for each facility by
the following percentages: Muckleshoot - 10.3%; Tonto Apache - 3.3% and;
Umatilla - 12.0%. Operating performance of each of the three facilities for
Fiscal 1997, as measured by their EBITDA margins were: Muckleshoot - 47.8%;
Tonto Apache - 52.0% and; Umatilla - 54.9%. The Company anticipates the
continued strong performance of each of the managed facilities.

         Interest income for the year ended June 30, 1997 was $958,000, which
represented a $1,001,000 or 51.1% decline from June 30, 1996 levels.
Approximately $464,000 of the decrease is due to the pay down of the Tribal
loans with the remainder of the decrease of $507,000 due to a lower average
balance of cash for Fiscal 1997 as compared to 1996. Additionally, approximately
$30,000 in interest income is included in Reorganization Items.

Costs and Expenses

         Salaries, wages and related costs for the year ended June 30, 1997
were $2,006,000. This represents a decrease of $856,000 or 29.9% and is due
directly to the Company's efforts to reduce operating expenses.

         Native American development Costs increased $543,000 or 28.6% from
$1,899,000 to $2,442,000 for the years ended June 30, 1996 and 1997
respectively. By reporting entity Native American development costs were:

<TABLE>
<CAPTION>
              Entity                      1997                     1996             Inc(Dec)              %
<S>                                      <C>                   <C>                 <C>                <C>
              CGII                     $  141,000              $862,000           $ (722,000)         (83.8%)
              CDGC                      2,190,000               951,000            1,239,000          130.3%
              CGMI                        112,000                86,000               26,000           30.2%
</TABLE>

         Development costs for CGII and CGDC for both Fiscal 1997 and 1996
were primarily for the benefit of the Narragansett Tribe in Rhode Island. The
increase in Rhode Island development costs is due primarily to increased
activity in attempting to further the Tribe's position toward an approved
Compact. As of June 30, 1997 the cumulative expenditures on the Rhode Island
project is approximately $8.7 million. About $7.4 million is expected to be
recoverable by the Company if and when a gaming facility is established by the
Narragansett Tribe. The Company's management expects that Fiscal 1998 funding
of the Narragansett project will not approach Fiscal 1997 levels, however, the
actual level of required funding cannot be reasonably estimated at this time
due to the uncertainty of the process.

         Professional fees (primarily legal) increased $61,000 or 3.4% to
$1,856,000 for the year ended June 30, 1997 as compared to the year ended June
30, 1996. Of the total increase, $368,000 was attributable to CGMI which was
offset by a $307,000 decrease in CGII. The decrease in the Company was due to
the sale and closure of the riverboat operations in Fiscal 1996 while the
increase in CGMI was due primarily to increased legal costs in protecting
certain contractual claims and professional fees for consultants used to
service the existing contracts.

         General and administrative costs for the year ended June 30, 1997
were $1,858,000, which included a reserve of about $120,000 for office
relocation costs and about a $75,000 write-off of F,F&E related to the
implementation of the Business Plan. This represents a decrease of $176,000
or 8.7% and is due directly to the Company's efforts to reduce operating
expenses.

                                      35
<PAGE>

         Depreciation and amortization expenses were $997,000 and $940,000 for
the years ended June 30, 1997 and 1996 respectively. The Fiscal 1997 amount
includes one month amortization of the excess reorganization cost of $193,000
and is offset by about $120,000 in reduced amortization of deferred contract
charges from the termination of the Muckleshoot Bingo and Cow Creek contracts.

         Reorganization adjustments included in Reorganization Items for the
year ended June 30, 1997 were comprised of:

         Legal Professional Fees                   $(1,716,000)
         Interest Income                                30,000
         Write-off of Goodwill                        (405,000)
         Excess Reorganization Value                 9,265,000
         Adjustments to Capital Stock               37,217,000
         Adjustment to Paid in Capital               7,877,000
                                                   -----------
               Total                               $52,268,000
                                                   ===========


         Reorganization fees paid to management included in Reorganization
Items amounted to $1,463,000 for the year ended June 30, 1997. According to
the Plan of Reorganization, this was comprised of (i) $900,000 from the
discontinuance and sale of the riverboat operation in New Orleans, (ii)
$550,000 in New Senior Secured Notes, and (iii) $13,000 in New Common Stock
grants.

Interest Expense

         Interest expense for the year ended June 30, 1997 is comprised of the
following: (i) Old Senior Secured Notes - $5,929,000, (ii) New Senior Secured
Notes - $251,000, (iii) amortization of original issue discount and deferred
finance charges - $813,000, (iv) Republic Note Payable - $1,050,000 and, (v)
CGMI equipment notes - $50,000, for a total of $8,093,000.

         Interest expense for the year ended June 30, 1996 is comprised of the
following: (i) Old Senior Secured Notes - $14,605,000, (ii) amortization of
original issue discount and deferred finance charges - $2,173,000, (iii)
Republic Note Payable - $2,185,000 and, (iv) CGMI equipment notes - $99,000,
for a total of $19,062,000.

Income Taxes


     As discussed in "Business - Net Operating Loss Carryforwards", management
of the Company believes that the Company and its subsidiaries possess Net NOLs
as of June 30, 1997 of approximately $31.5 million for federal income tax
purposes after taking into account the reorganization of the Company pursuant to
the Plan and assuming that Tax Code ss. 382(1)(5) applies, although no assurance
can be given that the Company will be able to utilize these NOLs. See "Risk
Factors - Net Operating Loss Carryforwards". For financial statement purposes, a
deferred tax benefit with respect to such NOLs could not be recorded on the
balance sheet of the Company because any realization of the NOLs cannot be
assured at this time and the amount cannot be estimated.

<PAGE>
Extraordinary Items

         The loss on early extinguishment of debt of $1,998,000 for the year
ended June 30, 1997, represents the accelerated write-off of original issue
discounts and deferred finance charges on the Old Senior Secured Notes paid as
a result of the closure and sale of the riverboat operations.

         The gain from  reorganization  items of  $103,464,000  for the year 
ended  June 30,  1997  represents  the following:


    Write-off Deferred Finance Costs and Original 
      Issue Discounts                                            $  (4,311,000)
    Record New Notes in exchange for old debt                      (23,100,000)
    Record New Notes issued to management included 
      in Reorganization Items                                          550,000
    Reduce Liabilities Subject to Compromise to zero               130,325,000
                                                                  ------------
    Total                                                         $103,464,000
                                                                  ============

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Company Management reviewed the disclosure requirements for Item 7A --
Quantitative and Qualitative Disclosures About Market Risks, and based upon the
Company's current capital structure, scope of operations, and financial
statement structure, management believes such disclosures are not warranted at
this juncture. As conditions may change, the Company will periodically review
its compliance with the disclosures, to the extent they are applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         This information appears in a separate section of this Annual Report on
Form 10-K for the fiscal year ended June 30, 1998 following Part IV.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         There have been no disagreements with the Company's independent public
accountants with respect to any matters of accounting principles or practices,
fiancial statement disclosure or auditing scope or procedure.

                                      36
<PAGE>
                                    PART III

                                   MANAGEMENT

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
<S>                                  <C>    <C>                                             <C>

         Name                        Age    Position                                         Director Class

         Charles B. Brewer           50     Chairman                                               A

         Michael W. Barozzi          50     President and Chief Operating Officer                  A

         Col. Clinton L. Pagano      70     Executive Vice President of Compliance                 B
         (Retired)                          and Director

         William S. Papazian         36     Executive Vice President and General Counsel,          C
                                            Corporate Secretary and Director

         Bradley A. Denton           34     Vice President and Chief Financial Officer             N/A
</TABLE>
         The Company's Class A Director's term shall expire at the third Annual
Meeting of Shareholders following May 28, 1997. The Company's Class B Director's
term shall expire at the second Annual Meeting of Shareholders following May 28,
1997. The Company's Class C Director's term shall expire at the first Annual
Meeting of Shareholders following May 28, 1997. Pursuant to the Second Amended
Indenture presently pending before the U.S. Bankruptcy Court, it is anticipated
that Mr. Brewer will be a Class A Common Director and Messrs. Barozzi, Papazian
and Pagano will be Common Directors. All terms of these directors will expire at
the next Annual Meeting of Shareholders.

----------------------------

         Charles B. Brewer was appointed as Chairman of the Board of Directors
on August 24, 1998 and is an outside director of the Company. From August 1996
to present Mr. Brewer has served as Chairman, President and Chief Executive
Officer of Southmark Corporation. From July 1989 through July 1996 Mr. Brewer
served as Chief Operating Officer, Executive Vice President, General Counsel and
Secretary of Southmark Corporation. Additionally, from September 1996 to present
Mr. Brewer has served as Trustee for the Value-Added Communications, Inc.
Litigation Trust and from January 1998 to present as Chairman and President of
Northwest Senior Housing Corporation. Mr. Brewer has also served as an outside
director to Lady Luck Gaming Corporation from January 1997 to present. From July
1989 to July 1996, Mr. Brewer served as Chief Operating Officer, Executive Vice
President, General Counsel and Secretary to Southmark Corporation.

         Michael W. Barozzi was appointed President and Chief Operating Officer
and a member of the Board of Directors on August 24, 1998. From November 1997 to
August 1998, and from April 1993 to September 1995, Mr. Barozzi served as Senior
Vice President of Operations of the Company. Mr. Barozzi served as an outside
gaming consultant to the Company from September 1995 until December 1997. From
August 1989 to July 1992 Mr. Barozzi was Casino Manager of the Trump Taj Mahal
Casino in Atlantic City, New Jersey. From March 1986 to January 1988 Mr. Barozzi
was Vice President and General Manager of the Aruba Concorde Hotel and Casino in
Aruba, Netherlands Antilles. Mr. Barozzi's career in the gaming industry spans
29 years and he has, in addition to the above, worked in Las Vegas, Nevada and
in Monte Carlo, Monaco. Mr. Barozzi is regarded as a foremost expert on casino
operations and development.

         Col. Clinton L. Pagano (retired) was appointed Executive Vice President
of Compliance and a Director of the Company in November 1992. Col. Pagano was
the Superintendent of the New Jersey State Police from 1975 to 1990, during the
tenures of two Governors. During 1990 and 1991, Col. Pagano was Director of the
New Jersey Division of Motor Vehicles, a position he was appointed to by a third
New Jersey Governor. Col. Pagano has over 35 years of law enforcement experience
including the implementation in New Jersey of a coordinated State and Federal
organized crime control program. During his tenure as Superintendent of the New
Jersey State Police, Col. Pagano was the State Director of Emergency Management,
a Federal crisis management program, and was also responsible for developing and
implementing various security programs for the New Jersey Sports and Exposition
Authority. Col. Pagano also served as a member of the Board of Directors of
Digital Products Corporation of Florida from December 10, 1992 to January 13,
1997, and was Chairman from February 14, 1996 to January 13, 1997.

         William S. Papazian was appointed Vice President and General Counsel of
the Company on May 23, 1994, became Senior Vice President and General Counsel on
June 17, 1995 and was appointed Corporate Secretary on September 5, 1995. Mr.
Papazian became a member of the Board of Directors on March 19, 1997 and
Executive Vice President and General Counsel on August 24, 1998. From July 1992
through May 1994, Mr. Papazian represented the Company in a wide variety of
matters as an attorney with the firm of Mason, Briody, Gallagher & Taylor in
Princeton, New Jersey. From February 1990 through June


                                       37
<PAGE>

1992, Mr. Papazian served as Associate General Counsel to Mercy Medical Center
in New York, New York. From November 1986 through February 1990, Mr. Papazian
practiced corporate law with the firm of Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano in Uniondale, New York. Mr. Papazian has been practicing
corporate and regulatory law since 1986, and is admitted to the bar in the
States of New Jersey, California, New York and Pennsylvania. Mr. Papazian has an
expertise in all aspects of gaming and regulatory law, and is a recognized
expert in Native American gaming.

         Bradley A. Denton was appointed Vice President and Chief Financial
Officer of the Company in April 1998. From December 1995 to January 1997, Mr.
Denton was Vice President and Chief Financial Officer for M.D. Labs, Inc., an
international food supplement manufacturer and distributor. Mr. Denton worked as
an investment banker with First Interstate Bank Corp. from October 1993 to
December 1995 and on Wall Street with Donaldson, Lufkin & Jenrette Securities
Corp. from November 1992 to July 1993. Mr. Denton started his career in public
accounting, spending six years in the audit and consulting groups of Deloitte &
Touche (August 1986-September 1989) and Ernst & Young (October 1989-August
1991). Mr. Denton is a Certified Public Accountant and has received a B.S. from
Arizone State University and an M.B.A. from Southern Methodist University.

         The Company knows of no family relationships between any director,
executive officer or person nominated or chosen by the Company to become a
director or executive officer.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the
National Association of Securities Dealers. Officers, directors and greater
than ten percent (10%) beneficial owners are required by SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 which they file.

         Based solely on the Company's review of the copies of such forms it
has received, and written representations from certain reporting persons that
they were not required to file Form 5 for specified fiscal years, the Company
believes that all of its officers, directors and greater than ten percent
(10%) beneficial owners complied with all filing requirements applicable to
them with respect to transactions during the fiscal year ended June 30, 1998.

ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth compensation to, earned by, or paid to
the Company's Chief Executive Officer, and all executive officers of the
Company. Set forth below is such information with respect to the Company and all
of its subsidiaries.


                                       38
<PAGE>
                          SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                       Secrities                       
Name and        Fiscal                                     Other      Restricted       Underlying         Long                All
Principal         Year                                     Annual          Stock     Options/SARs         Term              Other
Position         Ended       Salary          Bonus   Compensation         Awards(10)      Granted(11)  Payouts       Compensation
-----------------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>             <C>         <C>                <C>          <C>               <C>     <C>
Edward M.     
Tracy(1)      06/30/98     585,417               0        131,667(16/20)       0                0         0          323,707(19/21)
Chairman and  06/30/97     495,000         333,333        272,667(9)           0                0         0          216,250(16/18)
Chief         06/30/96     495,000               0              0              0        1,200,000(12)     0           41,250(14)
Executive     06/30/95     495,000         100,000         76,835(9)           0          800,000(12)     0                0
Officer
------------------------------------------------------------------------------------------------------------------------------------
Clinton L.    
Pagano(2)     06/30/98     129,167               0         37,500(16/20)       0                0         0           12,540(19)
Executive     06/30/97     100,000               0              0              0                0         0           14,268(19)
Vice          06/30/96     260,000(8)            0              0              0          350,000(13)     0                0
President     06/30/95     232,492               0              0              0           50,000(13)     0                0
and
Director
------------------------------------------------------------------------------------------------------------------------------------
William S.    
Papazian(3)   06/30/98     304,167               0         41,661(16/20)       0                0         0          169,481(17)
Executive     06/30/97     210,000         166,667        127,333(9)           0                0         0           16,667(16)
Vice          06/30/96     160,000               0              0              0          200,000(14)     0           13,333(16)
President,    06/30/95     160,000               0              0              0           35,000(14)     0                0
General                                                                                                   
Counsel,
Secretary
and
Director 
------------------------------------------------------------------------------------------------------------------------------------
Mark         
Suglian(4)    06/30/98     187,500               0         29,808(16)          0                0         0            2,253(19)
Vice          06/30/97     124,039               0              0              0                0         0            7,500(16)
President     06/30/96      90,000               0              0              0                0         0           11,652(19)
and Chief     06/30/95      22,500               0              0              0                0         0                0
Financial                                                                                                 
Officer 
------------------------------------------------------------------------------------------------------------------------------------
Michael
Barozzi(5)    06/30/98    $200,000(5)            0        $91,666(16/20)       0                0         0           1,152(19)
Senior Vice   06/30/97
President of  06/30/96
Operations    06/30/95
------------------------------------------------------------------------------------------------------------------------------------
James       
Ahearn(6)     06/30/98      98,077               0              0              0                0         0                0
Vice          06/30/97     150,000               0              0              0                0         0           12,500(16)
President     06/30/96     150,000               0              0              0          100,000(15)     0                0
and Chief     06/30/95     125,240          75,000         60,824(9)           0           70,000(15)     0                0
Operating                                                                                                 
Officer
------------------------------------------------------------------------------------------------------------------------------------
Bradley A.
Denton(7)     06/30/98      32,513               0              0              0                0         0                0
Vice          06/30/97
President     06/30/96
and Chief     06/30/95
Financial
Officer
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Mr. Tracy was appointed President and Chief Operating Officer of the
     Company on January 7, 1993. Mr. Tracy was appointed Chief Executive
     Officer of the Company on May 30, 1995, and became Chairman of the Board
     of Directors on March 19, 1997. Mr. Tracy resigned as an officer and 
     director of the Company on August 24, 1998.

(2)  Mr. Pagano was appointed Executive Vice President of Compliance and a
     member of the Board of Directors of the Company on October 17, 1993.

(3)  Mr. Papazian was appointed Vice President and General Counsel of the
     Company on May 23, 1994; Senior Vice President and General Counsel on
     June 17, 1995; and Secretary on September 5, 1995. He became a member of
     the Board of Directors on March 19, 1997 and Executive Vice President and
     General Counsel on August 24, 1998.

(4)  Mr. Suglian was appointed Vice President of Finance and Chief Financial
     Officer of Capital Gaming Management, Inc. on February 2, 1997; and Vice
     President and Chief Financial Officer of the Company on June 1, 1997. Mr.
     Suglian resigned as Vice President and Chief Financial Officer of the 
     Company on March 31, 1998.

                                       39
<PAGE>

(5)  Mr. Barozzi was appointed Senior Vice President of Operations of the
     Company on November 1997 and President and Chief Operating Officer of
     the Company on August 24, 1998. Prior to his appointment in November 1997,
     Mr. Barozzi was a consultant to the Company pursuant to which he was paid
     $50,000 in Fiscal year 1998.

(6)  Mr. Ahearn was appointed Vice President and Director of Operations of
     Capital Gaming Management, Inc. on August 15, 1994. Mr. Ahearn resigned
     as Vice President and Director of Operations of Capital Gaming
     Management, Inc. on August 31, 1997.

(7)  Mr. Denton was appointed Vice President and Chief Financial Officer of the
     Company on April 1, 1998.

(8)  Based on an annual salary of $260,000 earned by Mr. Pagano in fiscal
     1996. By letter agreement dated November 1, 1995, Mr. Pagano agreed to
     defer $160,000 of his salary on that date. Pursuant to the Company's Plan
     of Reorganization, Mr. Pagano's total deferred salary was treated by
     giving Mr. Pagano a $4,000 priority expense claim with the balance being
     a general unsecured claim.

(9)  Payments made by the Company to cover income taxes.

(10) Pursuant to the Plan of Reorganization, management has the right to
     receive, collectively, in the form of stock grants, ten (10%) percent of
     the issued and outstanding shares of the Company in three equal annual
     installments of 66,667 shares each commencing with the Effective Date.
     The total value recorded by the Company for the initial installments of
     the stock grants was $13,000. The Board of Directors has not as yet
     issued any such stock grants.

(11) Pursuant to the Stock Option Plan, ten percent (10%) of the Company's
     issued and outstanding stock has been reserved for issuance to management
     as incentive stock options. The Board of Directors has not, as yet,
     issued any such options.

(12) On January 14, 1996, 1,200,000 stock options exercisable at $5.25 per
     share were cancelled and replaced with 1,200,000 stock options
     exercisable at $.3125 per share. All stock options were cancelled in
     connection with the Plan of Reorganization.

(13) On January 14, 1996, 250,000 stock options exercisable at $5.25 per share
     were cancelled and replaced with 250,000 stock options exercisable at
     $.3125 per share. Also, an additional 100,000 stock options were granted
     exercisable at $.3125 per share. All stock options were cancelled in
     connection with the Plan of Reorganization.

(14) On January 14, 1996, 35,000 stock options exercisable at $5.25 per share
     were cancelled and replaced with 35,000 stock options exercisable at
     $.3125 per share. Also, an additional 165,000 stock options were granted
     with an exercise price of $.3125 per share. All stock options were
     cancelled in connection with the Plan of Reorganization.

(15) On January 14, 1996, 65,000 stock options exercisable at $5.25 per share
     were cancelled and replaced with 65,000 stock options exercisable at
     $.3125 per share. Also, an additional 35,000 stock options were granted
     with an exercise price of $.3125 per share. All stock options were
     cancelled in connection with the Plan of Reorganization.

(16) Vacation paid in lieu of time off.

(17) As part of the confirmation award pursuant to the Plan of Reorganization,
     Mr. Papazian was loaned $83,333 as an advance against the confirmation
     award. Mr. Papazian was subsequently paid $161,957, the net proceeds of
     which were used to repay the loan. Also includes certain relocation
     expenses. Pursuant to the Plan of Reorganization, Mr. Papazian is entitled
     to receive $183,333 in New Senior Secured Notes; these Notes have not as
     yet been distributed.

(18) On July 18, 1996, $175,000 was paid to Mr. Tracy in lieu of the Company's
     unfulfilled commitment to purchase Director's and Officer's Liability
     insurance.

(19) Miscellaneous fringe benefits paid relating to moving expenses, automobile
     allowances and medical insurance.

(20) Retroactive payroll per the terms of employment agreement.

(21) As part of the confirmation award pursuant to the Plan of Reorganization,
     Mr. Tracy was loaned $166,667 as an advance against the confirmation
     award. Mr. Tracy was subsequently paid $320,313, the net proceeds of which
     were used to repay the loan. Additionally, pursuant to the Plan of
     Reorganization Mr. Tracy was entitled to receive $366,667 in New Senior
     Secured Notes. Mr. Tracy released the Company of this obligation in
     connection with his resignation from the Company in August 1997.

                                       40
<PAGE>


Option/SAR Grants in the Fiscal Year Ended June 30, 1998

         In the fiscal year ended June 30, 1998, no stock options or SARs were
granted to any of the Company's executive officers named in the Summary
Compensation Table.

Aggregated Option/SAR Exercises in Fiscal Year Ended June 30, 1998, and
June 30, 1998 Option/SAR Values

         In the fiscal year ended June 30, 1998, no stock options or SARs were
exercised by any of the Company's executive officers named in the Summary
Compensation Table and no stock options or SARs were held as of June 30, 1998
by any of such named executive officers. All of the Company's issued and
outstanding stock options were cancelled in connection with the Plan of
Reorganization and there were no stock options issued and outstanding as of
June 30, 1998.

Long-Term Incentive Plan ("LTIP") Awards

         The Company does not have, and has made no award under, any
compensation plan constituting a "long-term incentive plan" (as that term is
defined under SEC Regulations). The Stock Option Plan is not a "long-term
incentive plan" as that term is defined under SEC Regulation S-K. Information
pertaining to the Stock Option Plan is provided herein under
"Business--Reorganization--Stock Option Plan".

Defined Benefits or Actuarial Plan

         The Company does not have, and has made no award under, any defined
benefit plan or actuarial plan.

Compensation of Directors

         Directors currently receive no fees for serving as members of the
Company's Board of Directors, but are reimbursed for their expenses in
connection with their attendance at each Board meeting.

         Michael W. Barozzi, Col. Clinton L. Pagano and William S. Papazian are
Directors of the Company and also employees of the Company, and are
compensated as employees under the terms of employment agreements discussed in
this report and described in the Summary Compensation Table hereinabove.

Employment Contracts, Termination of Employment and Change-In-Control
Arrangements

         The Company entered into an employment agreement with Michael W.
Barozzi, the Company's President and Chief Operating Officer, in December 1997,
which provides for, among other things, a term which extends to the third
anniversary of the Effective Date, a lump sum severance payment of $600,000 in
the event of termination without cause or upon a change in control, (at the
election of employee) and a severance payment of one year's salary in the event
of a voluntary termination upon the satisfaction of certain conditions. Mr.
Barozzi's annual salary is currently $275,000.

         Col. Clinton L. Pagano, an Executive Vice President and Director of the
Company, entered into a three-year employment agreement with the Company, dated
October 17, 1993, providing for an annual salary of $150,000. As of October 1,
1994, Col. Pagano's employment agreement was amended by resolution of the Board
of Directors to provide for an annual salary of $260,000. In the event of a
change of control of the Company, Col. Pagano's employment agreement provides
that the Company, and any successors, will continue to honor and be bound by the
agreement. During the duration of the employment agreement, the Company (or its
successor) is obligated to continue to pay a level of compensation not less than
the level applicable on the change of control date, fully perform the Company's
obligations on the change of control date, and continue benefit programs in
effect on the change of control date. Col. Pagano's employment agreement
provides that it may be terminated without cause upon 90 days' notice, in which
event the Company will be obligated to continue his salary and benefits for the
balance of the agreement, or 90 days, whichever is longer. On November 1, 1995,
Col. Pagano voluntarily agreed to defer and accrue $160,000 per year of his
$260,000 per year salary until such time as he notified the Company otherwise.
Col. Pagano's entire deferred salary was treated under the Plan of
Reorganization as a $4,000 priority claim with the balance treated as a general
unsecured claim. Additionally, on October 1, 1996 Col. Pagano's employment
agreement was amended to provide for an annual salary of $100,000 and a term of
three years from the Effective Date. In connection with the amendment, all
other terms of Col. Pagano's prior employment agreements remained unchanged.
Pursuant to Board approved increases and an amendment to his employment
agreement, Col. Pagano's annual salary is now $150,000.



                                       41
<PAGE>

         The Company entered into an amended and restated employment agreement
with William S. Papazian, the Company's Executive Vice President, General
Counsel and Secretary, and a Board Director on May 17, 1996, which provides for,
among other things, a three-year term, commencing on June 1, 1996, with
automatic one-year extensions; annual salary of $160,000 (which was subject to
an increase in connection with the Company's restructuring); and certain
severance agreements. Pursuant to Board approved increases and amendments to his
employment agreement, Mr. Papazian's annual salary is currently $275,000. An
amendment No. 1 to Mr. Papazian's employment agreement was entered into on the
Effective Date and provides, among other things, for a term of three years from
the Effective Date, a lump sum severance payment of $600,000 in the event of
termination without cause or upon a change in control (at the election of
employee) and a severance payment of one year's salary in the event of a
voluntary termination upon the satisfaction of certain conditions. The agreement
further provided for the distribution to Mr. Papazian, upon the satisfaction of
certain conditions, of $183,333 in New Secured Notes and a $83,333 cash payment
as contemplated by the Plan of Reorganization.

         The Company entered into an employment agreement with Bradley A.
Denton, the Company's Vice President and Chief Financial Officer, on February
11, 1998, which provides for, among other things, a term which extends to the
third anniversary of the Effective Date and a severance payment equal to six
month's salary in the event of a termination without cause. Mr. Denton's
employment agreement provides that the Company, and any successors, will
continue to honor and be bound by the agreement. During the duration of the
employment agreement, the Company (or its successor) is obligated to continue to
pay a level of compensation not less than the level applicable on the change of
control date, fully perform the Company's obligations on the change of control
date, and continue benefit programs in effect on the change of control date. Mr.
Denton's annual salary is currently $100,000.

Repricing of Stock Options

         There have been no repricings of stock options in the fiscal year
ended June 30, 1998. All of the Company's issued and outstanding stock options
were cancelled in connection with the Plan of Reorganization and there were no
stock options issued and outstanding as of June 30, 1998.


Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

         As of June 30, 1998, the Company's Executive Compensation Committee
consisted of an outside consultant, Robert B. Runyon. The Executive Compensation
Committee is responsible for setting all Company policies with respect to
compensation of executive officers and directors, as well as for determining
changes to the compensation level of such officers and directors.

         Mr. Runyon is a consultant to the Company for all compensation related
matters. During Mr. Runyon's career, he has served as an officer to such
corporations as ITT Corporation, ITT Grinnell, BP Oil Corporation and F. W.
Woolworth in the areas of organization, business planning and administration.
Mr. Runyon presently serves as a member of the Board of Directors and consultant
to several corporations and provides consulting services in the areas of
strategy, business planning, human resources and administrative systems.


                                       42
<PAGE>

         The Company is not aware of any relationship whereby (i) an executive
officer of the Company served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of another entity, one of whose
executive officers served on the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of the Company; (ii) an executive
officer of the Company served as a director of another entity, one of whose
executive officers served on the compensation committee (or other board
committee performing equivalent functions or, in the absence of such committee,
the entire board of directors) of the Company; or (iii) an executive officer of
the Company served as a member of the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served as a director of the Company.


THE EXECUTIVE COMPENSATION PROGRAM

         Report from Board of Directors on Executive Compensation

         This report is furnished by the Board of Directors of the Company.
During the fiscal year ended June 30, 1998, management of the Company spent
significant time and energies preparing for and completing its reorganization
proceedings. The Executive Compensation Committee of the Board of Directors did
not meet or issue any reports in fiscal 1998. Accordingly, compensation paid to
executive officers of the Company was determined by certain past and present
members of the Board Directors with affected Directors abstaining. In reaching
its determinations, the Board of Directors relied in part on the Executive
Compensation Program prepared by Runyon and Associates ("Runyon") in June 1995
as well as a fairness opinion on success bonus awards prepared by Runyon in May
1996.

         It is the objective of the Company's Executive Compensation Program
to develop, implement and manage a total executive compensation strategy that
will enable the Company to attract, motivate and sustain a superior
organization, as measured by the highest quality and performance standards, at
a cost that is fully competitive in the target marketplaces. The Executive
Compensation Program is further designed to enhance stockholder value,
motivate and attract superior executive officers to achieve long-term business
goals and provide compensation opportunities which are competitive and align
the interests of executive officers with the long-term interests of
stockholders through award opportunities that can result in ownership of
common stock.

         The specific elements of the Executive Compensation Program,
including the specific business purpose of each program component, is as
follows:


         1.       Base Salary

         This compensation is to bring to, and retain within the Company, the
technical, professional, and industry knowledge, along with the integrity,
licensure and skills required to operate the business competitively in the
marketplace.

          2.      Benefits

         In conjunction with base salary, benefits retain basic capabilities
and help maintain a competitive organization. Careful planning as to the cost
effectiveness of each benefit provided is a part of the program.


                                       43
<PAGE>

          3.      Perquisites

         Careful consideration to cost effectiveness of perquisites is a
priority of the Executive Compensation Committee and the goal of any
perquisites provided is to reduce stress in the working environment to
executives whose personal time is often sacrificed to job demands.

          4.      Short-Term (Annual) Incentives

         This variable element of the Executive Compensation Program focuses on
the achievement of specific near-term objectives. Measurements are in terms of
performance and expectations as per plans which can be quantified and qualified.
Incentive rewards are more a result of quantitative value building than
perceived value increase, although sound quantitative growth is the ultimate
goal.

          5.      Long-Term Incentives

         The goal of long-term incentives is the creation, development and
growth of an entity that increases in value, both quantitatively and
perceived, and demonstrates in real time the ability to generate superior
profits and profitability. Success under this criteria is best measured by
stock market valuation, over time, and incentive remuneration to the executive
is weighted towards equity appreciation.

      COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS AND BASES FOR
                                CEO COMPENSATION

         The fiscal years ending 1998, 1997 and 1996 represented difficult times
for the Company and its executive officers. With the closure of the River City
Joint Venture in June, 1995 and the resultant default on the Company's Old
Secured Notes. Critical to the Company's future success was the ability to
successfully sell and reorganize its CCCD subsidiary and recover maximum value
in a hostile business and regulatory climate, to preserve and grow the
operations of the Company's Indian gaming subsidiary, CGMI, as well as to
continue to develop the Narragansett Project through the CDGC subsidiary, to
negotiate and complete a successful restructuring of the parent company and
accomplish all of the above with a significantly reduced executive staffing
level. Continued employment of key executives and incentivized performance was a
critical component of the application of the Company's compensation policies in
order to achieve these essential tasks and position the Company for future
growth.

         In May, 1996, the Board of Directors of the Company requested a
fairness opinion on success bonus awards from Runyon. The subject
of the report was to analyze and provide an objective opinion on the
prevalence, appropriateness, fairness and structure of success fees, stay in
place fees and/or consummation bonuses in the context of business
reorganizations primarily arising from the bankruptcy process. This report
concluded that management of the Company took the prompt, prudent actions
necessary to not only recover substantially more financial assets from the
reorganization of the CCCD subsidiary than normally would have been possible,


                                       44
<PAGE>



but moreover preserved existing operations and positioned the Company for a
successful but difficult parent reorganization. The report further found that
in weighing the major contributions of management, the successful conversion
of CCCD's assets to substantial cash for the Company would, in and of itself,
warrant a significant success fee. The report additionally found that as
favorable a financial impact as such conversion represented, it would be
exceeded in the long run by the financial productivity of a viable,
competitive business enterprise. Based on the methodology contained in the
report for weighing these various relevant factors, the report concluded that
the reasonable range for the award of a success bonus, verified by consensus
both within bankruptcy environments, and in the course of normal business
conduct as fair and equitable to both executive management and debt/equity
holders, was within $1,100,000 to $1,665,000. Similarly, using a valuation of
the contributions made by management based on profitability, an award of
$1,030,000 to S1,548,000 was found to be reasonable. Finally, the report
concluded that the bonus pool ultimately created by the Board of Directors be
distributed by the Board of Directors to the principal contributors to the
reorganization. The actual payments made to the Company's executive officers
on the date hereof is contained in this Item 11 - Summary Compensation Table.

STOCK PRICE PERFORMANCE COMPARISON

         The following graph compares cumulative total return of the Company's
Common Stock (the Old Common Stock and the New Common Stock taking into
account the conversion ratio pursuant to the Plan of Reorganization) with the
cumulative total return of the Standard & Poor's 500 Index and a peer group
selected in good faith by the Company. The Company selected a composite of
small cap gaming common stocks for the industry peer group comparison. These
stocks include Aztar Corporation, Grand Casinos and Showboat, Inc. equally
weighted.

         The graph assumes $100 was invested on June 30, 1992 in shares of
Common Stock and stocks comprising the S&P 500 Index and the peer group. (As the
Company's stock was delisted effective June 25, 1997 from the NASDAQ OTC
Bulletin Board due to a lack of market matters for the Company's common stock,
data for the fiscal year ended June 30, 1998 is excluded from the chart.)


                                                S&P 500              Peer Group
                         Company                 Index                Composite
                         -------                 -----                ---------

      6/30/92           $100.00                $100.00               $100.00
      6/30/93            900.00                 110.39                125.82
      6/30/94            480.60                 108.80                106.49
      6/30/95             54.50                 133.39                126.52
      6/30/96             10.31                 164.20                142.07
      6/30/97              2.38                 216.58                113.94


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of the New Common Stock as of September 30, 1998: (i) by
each person who was known by the Company to be a beneficial owner of more than
five percent (5%) of the New Common Stock; (ii) by all directors and nominees;
(iii) by each of the named executive officers of the Company (as that term is
defined in Item 402(a)(3) of Regulation S-K); and (iv) by all directors and
executive officers of the Company as a group. Percentage of class is calculated
on the basis of 1,866,667 shares outstanding as of September 30, 1997, and
1,933,333 as of June 30, 1998 except that shares underlying options currently
vested and options exercisable within 60 days are deemed to be outstanding for
purposes of calculating the beneficial ownership of securities owned by the
holder of such options. Pursuant to the Plan of Reorganization, the Company
issued 1,866,667 shares of New Common Stock. As of September 30, 1998, the
Company held approximately 98% of the outstanding shares of the New Common Stock
as disbursing agent under the Plan of Reorganization. The Company expects the
balance of the outstanding shares will be distributed pursuant to the Plan of
Reorganization within the period of two years from the Effective Date.


                                       45
<PAGE>


      Name and Address of          Amount and Nature of
      Beneficial Owner(1)          Beneficial Ownership     Percentage of  Class

      Charles B. Brewer                      0                        *%

      Micharl W. Barozzi                     0                        *%

      Col. Clinton L. Pagano                 0                        *%

      William S. Papazian(2)                 1                        *%

      Bradley A. Denton                      0                        *%

      Directors and Executive                1                        *%
      Officers As a Group
      (5 persons)

------------------------

* Less than 1% of the Company's outstanding New Common Stock.


(1) The address of each beneficial owner named in this table, unless otherwise
    noted, is: c/o Capital Gaming International, Inc., 2701 East Camelback
    Road, Suite 484, Phoenix, Arizona 85016.

(2) Sole voting and investment power over the shares owned.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
         There were no related party transactions in fiscal year ended
         June 30, 1998.



                                       46
<PAGE>
  

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S>      <C>      <C>
(a)      1.       Financial Statements - See the Index to Financial Statements on page F-1.
         2.       Financial Statement Schedules - Schedules begin on page S-1.
         3.       Exhibits.
         2.1      Stock Purchase Agreement dated March 15, 1993, by and among the Registrant, Bass Leisure Group, Ltd., Bass Leisure
                  Group, Inc. and British American Bingo, Inc. (4)
         2.3      Involuntary Petition for Bankruptcy filed under Chapter 11 of the U.S. Bankruptcy Code against Crescent City
                  Capital Development Corp. dated July 26, 1995. (19)
         2.4      Consent to Entry of Order for Relief filed by Crescent City Capital Development Corp. in Chapter 11 Bankruptcy
                  Case dated July 28, 1995. (19)
         2.5      First Amended Chapter 11 Plan of Reorganization of Crescent City Capital Development Corp. as confirmed by the
                  Bankruptcy Court on January 12, 1996. (20)
         2.6      Second Amended Chapter 11 Plan of Reorganization of Crescent City Capital Development Corp. and First Immaterial
                  Modification, as confirmed by the Bankruptcy Court on April 29, 1996. (21)
         2.7      Stock Purchase Agreement by and among Casino Magic Corp., Jefferson Casino Corp., C-M of Louisiana, Inc., Capital
                  Gaming International, Inc. and Crescent City Capital Development Corp., dated February 21, 1996. (21)
         2.8      First Amended and Modified Plan of Reorganization of Capital Gaming International, Inc., dated March 19, 1997.
                  (22)
         3.1      Restated Certificate of Incorporation of the Registrant. (15)
         3.2      Amended and Restated Certificate of Incorporation of the Registrant. (26)
         3.2      Bylaws of the Registrant, as amended. (6)
         4.3      Indenture dated February 17, 1994, by and among the Registrant, Crescent City Capital Development Corp., British
                  American Bingo, Inc. and First Trust National Association (without exhibits and schedules). (9)
         4.4      Equity Registration Rights Agreement dated January 20, 1994, by and among the Registrant and the persons who are
                  signatories thereto (without exhibits and schedules) (multiple conformed signatures omitted). (9)
         4.5      Senior Secured Notes Registration Rights Agreement dated February 17, 1994, by and among the Registrant, Crescent
                  City Capital Development Corp., British American Bingo, Inc. and the purchasers who are signatories thereto
                  (without exhibits and schedules) (multiple conformed signatures omitted). (9)
         4.6      Security Agreement dated February 17 1994, by and among the Registrant, Crescent City Capital Development Corp.,
                  British American Bingo, Inc. and First Trust National Association (without exhibits and schedules). (9)
         4.7      Security Agreement dated February 17, 1994, by and between Crescent City Capital Development Corp. and First Trust
                  National Association (without exhibits and schedules). (9)
         4.8      Pledge Agreement dated February 17, 1994, by and between the Registrant and First Trust National Association
                  (without exhibits and schedules). (9)
         4.9      Pledge Agreement dated February 17, 1994, by and between British American Bingo, Inc. and First Trust National
                  Association (without exhibits and schedules). (9)
         4.10     Warrant Agreement dated January 20, 1994 by and between the Registrant and First Trust National Association
                  (without exhibits and schedules). (9)
         4.11     Form of Old Note. (11)
         4.12     Form of New Note. (11)
         4.13     First Supplemental Indenture dated June 24, 1994, to the Indenture dated February 17, 1994, by and among the
                  Registrant, Crescent City Capital Development Corp., Capital Gaming International Casino Management Division, Inc.
                  (formerly British American Bingo, Inc.) and First Trust National Association (without exhibits). (12)

</TABLE>


                                       47
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>      <C>
         4.14     Form of Term Note distributed to Bondholders in exchange for their consent to the first Supplemental Indenture.
                  (12)
         4.15     Amended and Restated Indenture, dated February 17, 1994 and amended and restated as of March 27, 1997, by and
                  among the Registrant, the Guarantor named therein and First Trust National Association. (23)
         4.16     Form of New Secured Note. (25)
         10.1     1990 Stock Option Plan, as amended. (15)
         10.34    Non-qualified Stock Option Agreement, dated February 27, 1992, by and between the Registrant and Michael F.
                  Marino. (1)
         10.35    Non-Qualified Stock Option Agreement, dated February 27, 1992, by and between the Registrant and Thomas E.
                  O'Brien. (1)
         10.36    Non-Qualified Stock Option Agreement, dated February 27, 1992, by and between the Registrant and Robert
                  DeFilippis. (1)
         10.38    Non-Qualified Stock Option Agreement, dated June 30, 1992, by and between the Registrant and Hank Johnson. (1)
         10.39    Non-qualified Stock Option Agreement dated June 30, 1992, by and between the Registrant and Thomas P. Gallagher.
                  (1)
         10.49    Stock Option Agreement dated January 7, 1993, by and between the Registrant and I.G. Davis, Jr. (2)
         10.50    Stock Option Agreement dated January 7, 1993, by and between the Registrant and Edward Tracy. (2)
         10.52    Non-qualified Stock Option Agreement dated November 23, 1992, by and between the Registrant and Col. Clinton L.
                  Pagano. (2)
         10.53    Non-Qualified Stock Option Agreement dated November 23, 1992, by and between the Registrant and Percival H.E.
                  Leach. (2)
         10.54    Non-qualified Stock Option Agreement dated January 7, 1993, by and between the Registrant and Thomas P. Gallagher.
                  (2)
         10.55    Non-qualified Stock Option Agreement dated January 7, 1993, by and between the Registrant and Joel Sterns. (2)
         10.56    Non-Qualified Stock Option Agreement dated January 7, 1993, by and between the Registrant and Frank Gelb. (2)
         10.62    Stock Option Agreement dated January 29, 1993, between the Registrant and Timothy G. Rose. (3) 
         10.70    Stock Option Agreement dated May 7, 1993, between the Registrant and Michael Barozzi. (6) 
         10.78    Stock Option Agreement dated September 15, 1993, by and between the Registrant and Peter Liguori. (6)
         10.79    Letter of Intent by and between the Registrant and Republic Corporate Services, Inc. dated April 6, 1993, with
                  amendments dated June 11, 1993, and June 28, 1993. (6)
         10.80    Escrow Agreement by and between the Registrant and Republic corporate Services, Inc. dated April 6, 1993, with
                  Amendment dated June 11, 1993. (6)
         10.81    Non-Qualified Stock Option Agreement by and between the Registrant and Republic Corporate Services, Inc. dated
                  June 11, 1993. (6)
         10.82    Option and Letter of Intent by and between the Registrant and Republic Corporate Services, Inc. dated August 25,
                  1993. (6)
         10.83    Term Note by and between the Registrant and Joel Sterns dated June 11, 1993. (6) 
         10.84    Stock and Option Pledge Agreement by and between the Registrant and Joel Sterns dated June 11, 1993. (6)
         10.86    Interim Agreement by and between the Board of commissioners of the Port of New Orleans and Crescent City Capital
                  Development corporation dated June 29, 1993. (6)
         10.92    Common Stock Purchase Warrant by and between the Registrant and First National Bank of Commerce dated September 1,
                  1993. (6)
         10.93    Berth Infrastructure Reimbursement Agreement by and between Crescent City Capital Development corporation and the
                  Board of Commissioners of the Port of New Orleans dated September 1, 1993. (6)
 
</TABLE>


                                       48
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>      <C>

         10.94    Engagement Letter by and between the Registrant and Stephen Edwards, Esq. dated July 20, 1993.
         10.95    Common Stock Purchase Warrant by and between the Registrant and Ladenburg, Thalmann & Co. Inc. dated July 22,
                  1993. (6)
         10.96    Common Stock Purchase Warrant by and between the Registrant and Ronnie Wohl dated July 22, 1993. (6)
         10.97    Common Stock Purchase Warrant by and between the Registrant and Ronald J. Crammer dated July 22, 1993. (6)
         10.98    Common Stock Purchase Warrant by and between the Registrant and Peter M. Graham dated July 22, 1993. (6)
         10.99    Common Stock Purchase Warrant by and between the Registrant and Jay R. Petschek dated July 22, 1993. (6)
         10.10    Common Stock Purchase Warrant by and between the Registrant and Brian M. Gonick dated July 22, 1993. (6)
         10.101   Common Stock Purchase Arrant by and between the Registrant and Thomas M. Ryan dated July 22, 1993. (6)
         10.109   Letter Agreement dated December 2, 1993 by and among the Registrant, Hospitality Franchise Systems, Inc., I.G.
                  Davis, Jr. and John E. Dell. (7)
         10.110   Amended and Restated Agreement dated January 13, 1994, by and between the Registrant and Bender Shipyard, Inc. (8)
         10.111   Purchase Agreement dated January 20, 1994, by and among the Registrant and the persons who are signatories thereto
                  (without exhibits and schedules) (multiple conformed signatures omitted). (10)
         10.112   Amendment to Purchase Agreement dated February 3, 1994, by and among the Registrant and the persons who are
                  signatories thereto (without exhibits and schedules) (multiple conformed signatures omitted). (10)
         10.113   Purchase Agreement dated January 20, 1994, by and between the Registrant and Hospitality Franchise Systems, Inc.
                  (without exhibits and schedules). (10)
         10.114   Amendment to Purchase Agreement dated February 17, 1994, by and among the Registrant, Hospitality Franchise
                  Systems, Inc. and Samuel Levine (without exhibits and schedules). (10)
         10.115   Purchase Agreement dated January 20, 1994, by and between the Registrant and MJM Partners, L.P. (without exhibits
                  and schedules). (10)
         10.116   Purchase Agreement dated January 20, 1994, by and between the Registrant and MJM International Limited (without
                  exhibits and schedules). (10)
         10.117   Purchase Agreement dated March 1, 1994, by and between the Registrant and MJM Partners, L.P. (without exhibits and
                  schedules). (10)
         10.118   Purchase Agreement dated March 1, 1994, by and between the Registrant and MJM International Limited (without
                  exhibits and schedules). (10)
         10.119   Cash Collateral and Disbursement Agreement dated February 17, 1994, by and among the Registrant, Crescent City
                  Capital Development Corp., British American Bingo, Inc., First Trust National Association and First National Bank
                  of commerce (without exhibits and schedules). (10)
         10.120   Marketing Services Agreement dated February 17, 1994, by and between the Registrant and HFS Gaming Corp. (without
                  exhibits and schedules). (10)
         10.122   Amendment to Option Letter of Intent dated December 15, 1993, by and between the Registrant and Republic Corporate
                  Services, Inc. (11)
         10.123   Agreement of Purchase and Sale dated April 26, 1994, by and among New Orleans 2000 Partnership, Crescent City
                  Capital Development Corp. and Grand Palais Riverboat, Inc. (11)
         10.125   Loan and Security Agreement dated February 17, 1994, by and between the Registrant and Republic Corporate
                  Services, Inc. (11)
         10.126   $5,000,000 Note dated February 17, 1994 from Republic corporate Services, Inc. to Registrant. (11)
         10.127   Letter Agreement dated May 4, 1994, by and between the Registrant and Republic Corporate Services, Inc. (11)
         10.128   $19,000,000 Note from the Registrant to Republic Corporate Services, Inc. (11)
</TABLE>


                                       49
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>      <C>
         10.130   First Amendment dated June 24, 1994, to the Cash Collateral and Disbursement Agreement dated February 17, 1994, by
                  and among the Registrant, Crescent City Capital Development Corp., Capital Gaming International Casino Management
                  Division, Inc. (formerly British American Bingo, Inc.), First Trust National Association and First National Bank
                  of Commerce. (12)
         10.131   Agreement to Purchase and Sell dated June 30, 1994, by and between River City Joint Venture and The Alabama Great
                  Southern Railroad. (12)
         10.132   Term Note by River City Joint Venture to New Orleans 2000 Partnership dated July 13, 1994. (13)
         10.133   Assignment of Agreement and Sale dated July 13, 1994. (13)
         10.134   Mortgage and Assignment of Leases and Rentals by River City Joint Venture in favor of New Orleans 2000 Partnership
                  dated July 13, 1994. (13)
         10.135   Amended and Restated partnership Agreement between Grand Palais Riverboat, Inc. and Crescent City Capital
                  Development Corp. dated July 7, 1994. (13)
         10.136   First Amendment dated June 1, 1994, to the Marketing Services Agreement dated February 17, 1994, by and between
                  the Registrant and HFS Gaming Corp. (14)
         10.137   Amendment effective as of October 1, 1994, to the Executive Employment Agreement effective asof October 17, 1993,
                  by and between the Registrant and Clinton L. Pagano. (16)
         10.139   Stock Option Agreement dated June 2, 1994, by and between Registrant and William S. Papazian.
         10.143   Stock Option Agreement dated August 24, 1994, by and between Registrant and James F. Ahearn.
         10.144   Letter Amendment to Warrant Agreements by and between Registrant, Ladenberg, Thalmann & Company, Inc., and certain
                  affiliates, dated October 11, 1994 (without exhibits). (16)
         10.145   Construction Agreement by and between Crescent City Capital Development Corp., Grand Palais Riverboat, Inc., and
                  Grimaldi Construction, Inc., dated October 25, 1994 (without exhibits). (17)
         10.146   Stock Purchase Agreement by and between Registrant, Fidelity Galileo Fund, L.P., and Fidelity Copernicus Fund,
                  L.P., dated as of March 30, 1995. (18)
         10.147   Registration Rights Agreement by and between Registrant, Fidelity Galileo Fund, L.P., and Fidelity Copernicus
                  Fund, L.P. dated as of March 30 1995. (18)
         10.148   Riverboat Casino Operating Agreement by and between Crescent City Capital Development Corp. and River Marine
                  Services, Inc., dated as of January 13, 1995. (18)
         10.152   Promissory Note dated March 27, 1995, between Crescent City Capital Development Corp. and First National Bank of
                  Commerce. (18)
         10.153   Commercial Guaranty dated March 27, 1995, between Registrant and First National Bank of Commerce. (18)
         10.154   Credit Agreement dated March 10, 1995, by and among River City Joint Venture, Crescent City Capital Development
                  Corp., Grand Palais Riverboat, Inc., and First National Bank of Commerce. (18)
         10.155   Promissory Note dated March 10, 1995, between River City Joint Venture and First National Bank of Commerce. (18)
         10.156   Mortgage dated March 9, 1995, between River City Joint Venture and First National Bank of Commerce, relating to
                  certain property owned by the River City Joint Venture (the "Orange Street Parcels"). (18)
         10.157   Mortgage dated March 9, 1995, between River City Joint Venture and First National Bank of Commerce, relating to
                  certain Property owned by the River City Joint Venture (the "Cusimano Parcels"). (18)
         10.162   Employment Agreement dated May 30, 1995, by and between the Registrant and Edward Tracy. (19)
         10.163   Employment Agreement dated May 30, 1995, by and between the Registrant and I.G. Davis, Jr. (19)
         10.167   Buy-Out Agreement dated September 1, 1995, by and among Registrant, Capital Gaming Management, Inc. and the Cow
                  Creek Band of Umpqua Tribe of Indians. (19)
</TABLE>


                                       50
<PAGE>

<TABLE>
<CAPTION>
<S>      <C>      <C>
         10.168   Amendments to the January 13, 1994, Amended and Restated Riverboat Construction Agreement by and between the
                  Registrant, Crescent City Capital Development Corp. and Bender Shipyard, Inc. dated October 19, 1994, February 3,
                  1995, and February 9, 1995. (19)
         10.169   First Preferred Ship Mortgage by Crescent City Capital Development Corporation in favor of First Trust National
                  Association dated March 23, 1995. (19)
         10.170   Engagement Agreement between Registrant and Donaldson, Lufkin & Jenrette dated June 20, 1995. (19)
         10.171   Employment Agreement dated May 17, 1996, by and between Registrant and William S. Papazian. (24)
         10.172   Amendment No. 1 to Employment Agreement dated May 28, 1997, by and between Registrant and William S. Papazian.
                  (27)
         10.173   Amendment No. 1 to Employment Agreement dated May 28, 1997, by and between the Registrant and Edward M. Tracy.
                  (27)
         10.174   Employment Agreement as of June 1, 1997, by and between Registrant and Michael Barozzi
         10.175   Employment Agreement dated February 11, 1998, by and between Registrant and Bradley A. Denton.
         10.176   Letter regarding confidentiality of Management Agreement between Capital Gaming Management Inc. and the Pueblo
                  of Laguna.


</TABLE>

                                       51
<PAGE>


<TABLE>
<CAPTION>

<S>      <C>      <C>
         11.0     Schedule of Computation of Earnings Per Share #
         12.0     Computation of Ratio of Earnings to Fixed Charges #
         27.      Financial Data Schedule #
</TABLE>

--------------------------------
#        Filed herewith.

1        Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's form 10-K filed with the
         Securities and Exchange Commission on September 28, 1992.

2        Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Post-Effective Amendment No. 5 to
         the Registration Statement on Form S-1, File No. 33-36618, declared
         effective by the Securities and Exchange Commission on November 21,
         1990.

3        Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Post-Effective Amendment No. 6 to
         the Registration Statement on Form S-1, File No. 33-36618, declared
         effective by the Securities and Exchange Commission on November 21,
         1990.

4        Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Post-Effective Amendment No. 8 to
         the Registration Statement on form S-1, File No. 33-36618, declared
         effective by the Securities and Exchange Commission on November 21,
         1990.

5        Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Current Report on Form 8-K filed
         with the Securities and Exchange Commission on September 27, 1993.

6        Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Form 10-K filed with the
         Securities and Exchange Commission on September 28, 1993.

7        Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Current Report on Form 8-K filed
         with the Securities and Exchange Commission on January 3, 1994.

8        Incorporated by reference to the exhibit numbered 10.109 filed in
         connection with the Registrant's Current Report on form 8-K filed
         with the Securities and Exchange commission on February 1, 1994.

9        Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Current Report on form 8-K filed
         with the Securities and Exchange commission on March 4, 1994.

10       Incorporated by reference to the exhibits numbered 10.110, 10.111,
         10.112, 10.113, 10.114, 10.115, 10.116, 10.117, 10.118 and 10.119,
         respectively, filed in connection with the Registrant's Current
         Report on form 8-K filed with the Securities and Exchange commission
         on March 4, 1994.

11       Incorporated by reference to the exhibits with the same number, filed
         in connection with the Registrant's Registration Statement on Form
         S-1, File No. 33-79082, which was filed with the Securities and
         Exchange Commission on May 18, 1994.

12       Incorporated by reference to the exhibits with the same number, filed
         i connection with the Registrant's Pre-Effective Amendment No. 1 to
         the Registration Statement on Form S-1, File No. 33-79082, which was
         filed with the Securities and Exchange Commission on July 11, 1994.

13       Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Current Report on form 8-K filed
         with the Securities and Exchange Commission on July 29, 1994.


                                       52
<PAGE>

14       Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Pre-Effective Amendment No. 2 to
         the Registration Statement on Form S-1, File No. 33-79082, which was
         filed with the Securities and Exchange Commission on August 11, 1994.

15       Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Form 10-K filed with the
         Securities and Exchange commission on September 28, 1994.

16       Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Registration Statement on Form
         S-1, File No. 33-86094, which was filed with the Securities and
         Exchange Commission on November 7, 1994.

17       Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Pre-Effective Amendment No. 1 to
         the Registration Statement on Form S-1, File No. 33-86094, which was
         filed with the Securities and Exchange Commission on November 15,
         1994.

18       Incorporated by reference to the exhibit with the same number filed
         in connection with the Registration Statement on Form S-1, File No.
         33-91024, which was filed with the Securities and Exchange Commission
         on April 7, 1995.

19       Incorporated by reference to the exhibit with the same number filed
         in connection with the Registrant's Form 10-K filed with the
         Securities and Exchange Commission on October 12, 1995.

20       Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Current Report on Form 8-K filed
         with the Securities and Exchange Commission on January 31, 1996.

21       Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Form 10-Q filed with the
         Securities and Exchange Commission on May 10, 1996.

22       Incorporated by reference to the exhibit with the same number, filed
         in connection with the Registrant's Form 8-K filed with the
         Securities and Exchange Commission on April 3, 1997.

23       Incorporated by reference to exhibit 4.1, filed in connection with
         the Registrant's Form 8-K filed with the Securities and Exchange
         Commission on April 3, 1997.

24       Incorporated by reference to the exhibit with the same number with
         the Registrant's Form 10-K filed with the Securities and Exchange
         Commission on October 15, 1996

25       Incorporated by reference to exhibit A to exhibit 4.1, filed in
         connection with the Registrant's Form 8-K filed with the Securities
         and Exchange Commission on April 3, 1997.

26       Incorporated by reference to exhibit B to exhibit 2.1, filed in
         connection with the Registrant's Form 8-K filed in connection with
         the Securities and Exchange Commission on April 3, 1997.

27       Incorporated by reference to the exhibit with the same number with
         Registrant's Form 10-K filed with the Securities and Exchange 
         Commission on October 14, 1997.

         (b)  Reports on Form 8-K.

         Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 3, 1997.

         Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 11, 1997.

         Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 2, 1998.

         Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 31, 1998.

         Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 10, 1998.

         Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 13, 1998.

                                       53
<PAGE>


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                   CAPITAL GAMING INTERNATIONAL, INC.

Dated:  October 23, 1998           By: /s/ Michael W. Barozzi
                                      ------------------------------------------
                                      Michael W. Barozzi, President and Chief
                                      Operating Officer 
                                      (Authorized Representative)

Dated:  October 23, 1998           By: /s/ William S. Papazian
                                      ------------------------------------------
                                      William S. Papazian, Executive Vice 
                                      President and General Counsel and 
                                      Secretary
                                      (Authorized Representative)

Dated:  October 23, 1998           By: /s/ Bradley A. Denton
                                      ------------------------------------------
                                      Bradley A. Denton, Vice President and
                                      Chief Financial Officer
                                      (Principal Accounting Officer)



                                       54
<PAGE>


                      CAPITAL GAMING INTERNATIONAL, INC.
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         Page

Independent Auditor's Report..............................................F-2

Consolidated Balance Sheets as of June 30, 1998 and 1997..................F-3

Consolidated Statements of Operations for the year ended June 30, 1998,
  the period May 29, 1997 through June 30, 1997, the period July 1, 1996
  through May 28, 1997, and the year ended June 30, 1996..................F-5

Consolidated Statements of Changes in Stockholders' Equity [Deficit]
  for the year ended June 30, 1998, the period May 29, 1997 through June
  30, 1997, the period July 1, 1996 through May 28, 1997, and the year
  ended June 30, 1996.....................................................F-6

Consolidated Statements of Cash Flows for the year ended June 30, 1998,
  the period May 29, 1997 through June 30, 1997, the period July 1, 1996
  through May 28, 1997 and the year ended June 30, 1996...................F-7

Notes to Consolidated Financial Statements................................F-11

Independent Auditor's Report on Supplementary Schedule....................S-1

Schedule II - Valuation and Qualifying Accounts...........................S-2



                                     F-1

<PAGE>


                         INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Stockholders of
 Capital Gaming International, Inc.
 Phoenix, Arizona

         We have audited the accompanying consolidated balance sheets of Capital
Gaming International, Inc. and its subsidiaries as of June 30, 1998 and 1997,
and the related consolidated statements of operations, changes in stockholders'
equity [deficit], and cash flows for the fiscal year ended June 30, 1998, the
period May 29, 1997 to June 30, 1997, the period July 1, 1996 to May 28, 1997,
and for the fiscal year ended June 30, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
                                
         We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Capital Gaming International, Inc. and its subsidiaries as of June
30, 1998 and 1997, and the consolidated results of their operations and their
cash flows for the fiscal year ended June 30, 1998, the period May 29, 1997 to
June 30, 1997, the period July 1, 1996 to May 28, 1997, and for the fiscal
year ended June 30, 1996, in conformity with generally accepted accounting
principles.

         As more fully described in Note 1 to the consolidated financial
statements, effective May 29, 1997, the Company emerged from bankruptcy. In
accordance with an American Institute of Certified Public Accountants'
Statement of Position, the Company has adopted "fresh start" reporting whereby
its assets, liabilities and new capital structure have been adjusted to
reflect estimated fair values as of May 28, 1997. As a result, the
consolidated financial statements for the period subsequent to May 28, 1997,
reflect this basis of reporting and are not comparable to the Company's
prereorganization consolidated financial statements.





                                              MOORE STEPHENS, P.C.
                                              Certified Public Accountants.

Cranford, New Jersey
August 7, 1998



                                      F-2



<PAGE>


                      CAPITAL GAMING INTERNATIONAL, INC.
                          CONSOLIDATED BALANCE SHEETS
                                   (ROUNDED)


                                    ASSETS


<TABLE>
<CAPTION>



                                                                             June 30, 1998              June 30, 1997   
                                                                          -------------------        -------------------
<S>                                                                           <C>                        <C>            
CURRENT ASSETS                                                                                                          
   Cash & Cash Equivalents                                                     $ 4,498,000                $ 3,923,000   
   Interest Receivable                                                              29,000                     72,000   
   Native American Management Fees and Other Receivables                           709,000                    771,000   
   Current Portion-Native American Loan Receivable  [Note 7]                     2,249,000                  3,943,000   
   Current Portion-Notes Receivable, Other                                              --                     20,000   
   Notes Receivable From Officers [Note 10]                                             --                    250,000   
   Prepaid Expenses and Other Current Assets                                       232,000                    417,000   
                                                                               -----------                -----------   
TOTAL CURRENT ASSETS                                                             7,717,000                  9,396,000   
                                                                               -----------                -----------   
FURNITURE, FIXTURES AND EQUIPMENT, net [Note 8]                                     23,000                     15,000   
                                                                               -----------                -----------   
                                                                                                                        
EXCESS REORGANIZATION VALUE, net [Notes 1 & 5]                                   5,767,000                  9,072,000   
                                                                               -----------                -----------   
                                                                                                                        
OTHER ASSETS                                                                                                            
   Restricted Funds In Escrow [Note 20]                                            541,000                    926,000   
   Native American Loans Receivable [Note 7]                                     1,444,000                  3,688,000   
   Investment In Native American Management                                                                             
     Agreements, net [Note 9]                                                    1,229,000                  1,937,000   
   Notes Receivable, Other                                                              --                     80,000   
                                                                               -----------                -----------   
TOTAL OTHER ASSETS                                                               3,214,000                  6,631,000   
                                                                               -----------                -----------   
TOTAL ASSETS                                                                   $16,721,000                $25,114,000   
                                                                               ===========                ===========   
</TABLE>     


Due to the reorganization and implementation of fresh-start reporting, financial
statements for the Reorganized Company (Period starting May 29, 1997) are not
comparable to those of the predecessor Company. See Notes to the Financial
Statements for additional information.


             The Accompanying Notes are an Integral Part of these
                      Consolidated Financial Statements

                                      F-3


<PAGE>




                      CAPITAL GAMING INTERNATIONAL, INC.
                         CONSOLIDATED BALANCE SHEETS
                                   (ROUNDED)
<TABLE>
<CAPTION>

                                  LIABILITIES

                                                                             June 30, 1998         June 30, 1997        
                                                                           ------------------    -----------------      
<S>                                                                            <C>                   <C>                
CURRENT LIABILITIES                                                                                               
   Accounts Payable and Accrued Expenses                                        $ 1,233,000           $ 2,714,000       
   Accrued Interest                                                                 346,000               251,000
   State Income Taxes Payable                                                       147,000                    --       
                                                                                -----------           -----------       
TOTAL CURRENT LIABILITIES                                                         1,726,000             2,965,000       
                                                                                                                  
LONG-TERM DEBT                                                                                                    
   12.0% Senior Secured Notes Payable [Notes 11 & 18]                            23,100,000            23,100,000       
                                                                                -----------           -----------       
TOTAL LIABILITIES                                                                24,826,000            26,065,000       
                                                                                -----------           -----------       
STOCKHOLDERS' EQUITY                                                                                              
   Common Stock, No Par Value, Authorized 3,200,000 Shares; Issued                                                
     and Outstanding 1,933,333 and 1,866,667 Shares at June 
     30, 1998 and 1997 [Note 12]                                                    400,000               400,000 
   Additional Paid In Capital                                                            --                    --       
   Retained Deficit (Since May 29, 1997, date of Reorganization,                                       
     total deficit eliminated was $145,754,000)                                  (8,505,000)           (1,351,000)      
                                                                                -----------           -----------       
TOTAL STOCKHOLDERS' DEFICIT                                                      (8,105,000)             (951,000)      
                                                                                -----------           -----------       
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                     $16,721,000           $25,114,000       
                                                                                ===========           ===========       
</TABLE>                                                 



Due to the reorganization and implementation of fresh-start reporting, financial
statements for the Reorganized Company (Period starting May 29, 1997) are not
comparable to those of the predecessor Company. See Notes to the Financial
Statements for additional information.


             The Accompanying Notes are an Integral Part of these
                       Consolidated Financial Statements



                                      F-4



<PAGE>

                      CAPITAL GAMING INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       (ROUNDED EXCEPT NUMBER OF SHARES
                             AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                
                                                            Reorganized Company       |         Predecessor Company       
                                                       ----------------------------   |   ------------------------------
                                                                       May 29, 1997   |    July 1 1996
                                                         Year Ended       through     |       through        Year Ended 
                                                       June 30, 1998  June 30, 1997   |    May 28, 1997     June 30, 1996     
                                                       -------------  -------------   |    ------------     ------------     
<S>                                                   <C>             <C>             |   <C>            <C>             
REVENUES:                                                                             |
  Native American Casino Management Fees [Note 4]        $8,150,000    $  753,000     |    $ 7,447,000    $  7,663,000   
                                                         ----------    ----------     |    -----------    ------------   
COSTS AND EXPENSES:                                                                   |
  Salaries Wages and Related Costs                        3,284,000       188,000     |      1,818,000       2,862,000   
  Gaming Development Costs                                2,317,000       532,000     |      1,910,000       1,907,000   
  Professional Fees                                       1,380,000       469,000     |      1,387,000       1,795,000   
  General & Administrative                                1,447,000       470,000     |      1,388,000       2,034,000   
  Depreciation and Amortization                           3,153,000       262,000     |        735,000         940,000   
  Costs of Operations of Riverboat Gaming Facility                                    |
    [Note 1]                                                     --            --     |             --       4,903,000   
  Write Down of Excess Reorganization Value [Note 5]      1,300,000            --     |             --              --   
                                                         ----------    ----------     |    -----------    ------------   
TOTAL COSTS AND EXPENSES                                 12,881,000     1,921,000     |      7,238,000      14,441,000   
                                                         ----------    ----------     |    -----------    ------------   
[LOSS] INCOME FROM OPERATIONS                            (4,731,000)   (1,168,000)    |        209,000      (6,778,000)  
                                                         ----------    ----------     |    -----------    ------------   
                                                                                      |
REORGANIZATION ITEMS:                                                                 |
  Reorganization Adjustments                                     --            --     |     52,268,000        (600,000)  
  Reorganization Fees Paid To Management                         --            --     |     (1,463,000)             --   
                                                         ----------    ----------     |    -----------    ------------   
TOTAL REORGANIZATION ITEMS                                       --            --     |     50,805,000        (600,000)  
                                                         ----------    ----------     |    -----------    ------------   
OTHER INCOME [EXPENSE]:                                                               |
  Interest Income                                           798,000        83,000     |        875,000       1,959,000   
  Interest Expense (Total Contractual Interest was                                    |
    $13,610,000 for the 156 Days Ended May 28, 1997)     (2,885,000)     (251,000)    |     (7,842,000)    (19,062,000)  
  Gain on Sale of Development Agreement                          --            --     |             --         221,000   
  Sale of Management Contract                                    --            --     |             --       3,000,000   
  Gain on Disposal of Riverboat Gaming Assets[Note1]             --            --     |        364,000      17,542,000   
                                                         ----------    ----------     |    -----------    ------------   
TOTAL OTHER INCOME [EXPENSE]                             (2,087,000)     (168,000)    |     (6,603,000)      3,660,000   
                                                         ----------    ----------     |    -----------    ------------   
[LOSS] INCOME BEFORE INCOME TAX                          (6,818,000)   (1,336,000)    |     44,411,000      (3,718,000)  
                                                                                      | 
PROVISION FOR INCOME TAX EXPENSE [NOTE 6]                  (336,000)      (15,000)    |       (123,000)       (321,000)  
                                                         ----------    ----------     |    -----------    ------------   
[LOSS] INCOME BEFORE EXTRAORDINARY ITEM                  (7,154,000)   (1,351,000)    |     44,288,000      (4,039,000)  
  Extraordinary Item - Loss on Early Extinguishment                                   |
    of Debt [Notes 1,2 & 19]                                     --            --     |     (1,998,000)             --   
  Extraordinary Item - Gain From                                                      |
    Reorganization Items [Notes 1,2 & 19]                        --            --     |    103,464,000              --   
                                                         ----------   -----------     |    -----------    ------------   
NET [LOSS] INCOME                                       $(7,154,000)  $(1,351,000)    |  $ 145,754,000    $ (4,039,000)  
                                                        ============  ============    |   =============    ============   
BASIC [LOSS] PER SHARE (a)                              $     (3.82)  $     (0.72)    |            N/A             N/A      
                                                        ============  ===========     |  =============    ============   
Weighted Average Common And Equivalent                                                |
  Shares Outstanding                                       1,872,694    1,866,667     |            N/A             N/A   
                                                        ============  ===========     |  =============    ============   
</TABLE>                                           


   Due to the reorganization and implementation of fresh-start reporting,
   financial statements for the Reorganized Company (Period starting May 29,
   1997) are not comparable to those of the predecessor Company. See Notes to
   the Financial Statements for additional information.

a) The weighted average number of common shares outstanding and basic income per
   common share for the predecessor company (periods through May 28, 1997 (the
   Effective Date)) have not been presented because, due to the Company's
   reorganization and implementation of fresh start reporting, they are not
   comparable to subsequent periods and are irrelevant.

             The Accompanying Notes are an Integral Part of these
                      Consolidated Financial Statements

                                      F-5




<PAGE>


                      CAPITAL GAMING INTERNATIONAL, INC.
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]
                       (ROUNDED EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>



                                                             Common Stock                       Additional           Accumulated
                                                             ------------                       ----------           -----------
                                                       Shares                Amount               Capital              Deficit
                                                       ------                ------               -------              -------
<S>                                                 <C>                  <C>                     <C>               <C>
Balance - June 30, 1995                              19,329,574          $ 37,617,000           $  7,877,000       $(141,715,000)

    Net Loss Year Ended June 30, 1996                        --                    --                     --          (4,039,000)
                                                    -----------          ------------            -----------       -------------

Balance - June 30, 1996                              19,329,574            37,617,000              7,877,000        (145,754,000)

    Cancellation of Predecessor Company
    Common Stock and Elimination Of
       Deficit (Pursuant to Fresh Start
         Reporting) [Notes 1 & 2]                   (19,329,574)          (37,617,000)            (7,877,000)        145,754,000
                                                    -----------          ------------            -----------       -------------
Balance - May 28, 1997                                       --                    --                     --                  --

    Issuance of New Common Stock (Pursuant to
      Fresh Start Reporting)                          1,800,000               387,000                     --                  --
    Stock Grants to Officers and Directors               66,667                13,000                     --                  --
    Net Loss May 29 through June 30, 1997                    --                    --                     --          (1,351,000)
                                                    -----------          ------------            -----------        ------------
Balance - June 30, 1997                               1,866,667               400,000                     --          (1,351,000)

    Stock Grants to Officers and Directors               66,666                    --                     --                  --
    Net Loss Year Ended June 30, 1998                        --                    --                     --          (7,154,000)
                                                    -----------          ------------            -----------        ------------
Balance - June 30, 1998                               1,933,333          $    400,000            $        --        $ (8,505,000)
                                                    ===========          ============            ===========        ============
</TABLE>



             The Accompanying Notes are an Integral Part of these
                      Consolidated Financial Statements



                                      F-6



<PAGE>

                      CAPITAL GAMING INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (ROUNDED)


<TABLE>
<CAPTION>
                                                            Reorganized Company          |         Predecessor Company
                                                    ----------------------------------   |  ---------------------------------
                                                                          May 29, 1997   |   July 1 1996
                                                     Year Ended              through     |      through           Year Ended 
                                                    June 30, 1998         June 30, 1997  |   May 28, 1997       June 30, 1996  
                                                    ---------------       -------------  |   ------------       -------------    
<S>                                                 <C>                   <C>            |  <C>                <C>            
                                                                                         |
OPERATING ACTIVITIES:                                                                    |
                                                                                         |
  Net [Loss] Income                                   $ (7,154,000)        $ (1,351,000) |    $  145,754,000     $ (4,039,000) 
                                                      ------------         ------------  |    --------------     ------------  
Adjustments to Reconcile Net [Loss] Income to                                            |
  Net Cash Provided by Operations:                                                       |
     Depreciation and Amortization                       3,153,000              262,000  |           735,000          940,000  
     Loss on Sale of Assets                                     --                   --  |                --            1,000  
     [Gain] on Sale of Development Agreement                    --                   --  |                --         (221,000) 
     Loss on Early Extinguishment of Debt                       --                   --  |         1,998,000               --  
     Extraordinary Gain From Reorganization                     --                   --  |      (103,464,000)              --  
     Reorganization Adjustments                           (426,000)                  --  |       (53,954,000)              --  
     Reorganization Fees Paid To Management                     --                   --  |           550,000               --  
     Amortization of Deferred Financing Cost                    --                   --  |           552,000        1,431,000  
     Amortization of Original Issue Discount                    --                   --  |           261,000          643,000  
     Abondonment of Capital Asset                               --               75,000  |                --               --  
     Write-Down of Excess Reorganization Value           1,300,000                   --  |                --               --  
  Equity in (Gain) Lossses of Unconsolidated                                             |
   Affiliate                                                    --                   --  |                --        1,262,000  
  Adjustments to Basis of Disposed Assets                       --                   --  |                --       (5,981,000) 
  [Gain] on Sale of Riverboat Gaming Operations                 --                   --  |          (364,000)     (17,542,000) 
  Proceeds from Sale of Riverboat Gaming                                                 |  
    Operations                                                  --                   --  |                --       15,000,000  
  Cash Disbursed to Liquidating Trust                           --                   --  |                --       (4,741,000) 
  Repayment of Debtor in Possession Financing                   --                   --  |                --       (3,009,000) 
  Accrued Expenses Due To Liquidating Trust                     --                   --  |                --        7,000,000  
    Operations                                                  --                   --  |                --          500,000  
(Increase) decrease in:                                                                  |
  Native American Management Fees and Other Receivables     62,000               42,000  |          (146,000)       1,329,000   
  Interest Receivable                                       43,000                6,000  |           539,000          (29,000)  
  Prepaid Expenses and Other Assets                                                      |
   [Including Income Taxes Receivable]                     185,000              200,000  |          (512,000)         (53,000)  
  Notes Receivable, Other                                  100,000                   --  |                --               --  
  Officer Loans                                            250,000                   --  |          (250,000)              --   
Increase (decrease) in:                                                                  |
  Accounts Payable and accrued expenses                 (1,481,000)             858,000  |           821,000        1,496,000   
  Accrued Interest                                          95,000              251,000  |         6,979,000       16,795,000 
  State Income Taxes Payable                               147,000                   --  |                --               --  
                                                        ----------           ----------  |      ------------      -----------   
  Total Adjustments                                      3,428,000            1,694,000  |      (146,255,000)      14,821,000   
                                                        ----------           ----------  |      ------------      -----------   
TOTAL PROVIDED BY (USED IN) OPERATING ACTIVITIES        (3,726,000)             343,000  |          (501,000)      10,782,000   
                                                        ----------           ----------  |      ------------      -----------   
</TABLE>                                                                  
                                                                            
                                                                            
             The Accompanying Notes are an Integral Part of these           
                      Consolidated Financial Statements                     
                                                                            
                                      F-7                                   
                                                                            
                                                                            
                                                                            
<PAGE>


                      CAPITAL GAMING INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (ROUNDED)
<TABLE>
<CAPTION>
                                                            Reorganized Company          |         Predecessor Company
                                                     ---------------------------------   |    -------------------------------
                                                                          May 29, 1997   |    July 1, 1996
                                                       Year Ended            through     |       through           Year Ended 
                                                      June 30, 1998       June 30, 1997  |     May 28, 1997      June 30, 1996     
                                                     ---------------      -------------  |     ------------      ------------- 
<S>                                                  <C>               <C>               |    <C>              <C>               
                                                                                         |
INVESTING ACTIVITIES                                                                     |
                                                                                         |
  Repayment of Native American                                                           |
    Loans/Advances                                       3,939,000            332,000    |       3,363,000         12,097,000      
  (Increase) Decrease in Restricted Funds                  385,000             (2,000)             (11,000)                --
  Proceeds From Sale of Assets                                  --                 --    |              --            293,000      
  Advances to Affiliates                                        --                 --    |              --           (335,000)     
  Net Transfers (To) From Restricted Cash                       --                 --    |        (413,000)         4,064,000      
  Investments in Management Agreements                          --                 --    |              --           (243,000)     
  Loans To Tribes                                               --                 --    |              --         (1,069,000)     
  Cash Held in Escrow                                           --                 --    |              --           (500,000)
  Purchase of Furniture, Fixtures and Equipment            (23,000)                --    |              --                 -- 
                                                         ----------          ---------   |      ----------         ----------
                                                                                         |
TOTAL PROVIDED BY INVESTING ACTIVITIES                   4,301,000            330,000    |       2,939,000         14,307,000      
                                                         ----------          ---------   |      ----------         -----------
</TABLE>                                                                    
                                                                            
                                                                            
             The Accompanying Notes are an Integral Part of these           
                      Consolidated Financial Statements                     
                                                                            
                                      F-8                                   
                                                                            



<PAGE>



                      CAPITAL GAMING INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (ROUNDED)


<TABLE>
<CAPTION>
                                                            Reorganized Company          |          Predecessor Company
                                                     ---------------------------------   |    -------------------------------
                                                                          May 29, 1997   |    July 1, 1996
                                                       Year Ended            through     |       through           Year Ended 
                                                      June 30, 1998       June 30, 1997  |     May 28, 1997      June 30, 1996   
                                                     ---------------      -------------  |     ------------      ------------- 
<S>                                                  <C>               <C>               |<C>              <C>               
                                                                                         |
FINANCING ACTIVITIES                                                                     |                
   Proceeds From Issuance of Notes                              --                  --   |              --                         
   Reduction in Equipment Notes                                 --                  --   |      (1,290,000)        (1,686,000)    
   Payments to Trustee for Senior Secured                                                |            
    Noteholders                                                 --                  --   |              --        (22,489,000)
                                                    -------------------------------------|------------------------------------
TOTAL USED IN FINANCING ACTIVITIES                              --                  --   |      (1,290,000)       (24,175,000)    
                                                    -------------------------------------|------------------------------------
NET INCREASE                                               575,000             673,000   |       1,148,000            914,000     
                                                                                         |
CASH AND CASH EQUIVALENTS -                                                              |
  BEGINNING OF PERIODS                                   3,923,000           3,250,000   |       2,102,000          1,188,000     
                                                    -------------------------------------|------------------------------------
CASH AND CASH EQUIVALENTS -                                                              |
  END OF PERIODS                                        $4,498,000         $ 3,923,000   |   $   3,250,000      $   2,102,000     
                                                    =====================================|====================================
                                                                                         |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                                    |
  INFORMATION:                                                                           |
                                                                                         |
  Cash Paid During The Periods For:                                                      |
    Interest                                            $2,671,896         $    50,000   |   $   2,510,000      $  17,252,000     
    Income Taxes                                        $    2,000         $        --   |   $     423,000      $           -       
                                                                          
                                                                          
</TABLE>                                                                  
                                                                          
             The Accompanying Notes are an Integral Part of these         
                      Consolidated Financial Statements                   
                                                                          
                                                                          
                                      F-9                                 
                                                                          
                                                                          
<PAGE>                                                                    
                                                                          
                                                                          

                      CAPITAL GAMING INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

            In May 1996, the Company sold all the outstanding common stock of
   its wholly owned subsidiary, CCCD for $50,000,000, plus assumptions of
   equipment liabilities of $6,500,000. The Company received cash of
   $15,000,000, a note for $35,000,000 and Casino Magic assumed equipment
   Notes of $6,500,000.

            In May 1996, the Company, as guarantor, assumed the liability from
   CCCD of the bank note payable of $2,000,000 to FNBC.

            On July 29, 1996, the Indenture Trustee for the Company's Senior
   Secured Noteholders distributed an aggregate of $49,986,000 in cash and
   Purchaser's Notes to the Senior Secured Noteholders on account of principal
   and accrued interest ("Noteholder Distribution"). The Noteholder
   Distribution included $28,000,000 in Purchaser's Notes, as well as cash
   from the sale of CCCD and CMC, proceeds from the early payment of the
   development loan to the Muckleshoot Tribe, proceeds from the buyout of the
   Cow Creek contract, $3,200,000 in unused restricted cash and other sources.
   Subsequently, in August 1996 the Purchaser's Notes were redeemed by CMC at
   100% of the principal amount plus accrued interest. The remainder of
   $413,000 was held in a cash escrow account by the trustee of the Company's
   Senior Secured Noteholders.

                                     F-10
<PAGE>



                      CAPITAL GAMING INTERNATIONAL, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)      BASIS OF PRESENTATION AND REORGANIZATION UNDER CHAPTER 11

         The Company

         Capital Gaming International, Inc. (the "Company"), together with its
subsidiaries, is a multi-jurisdictional gaming company with gaming management
interests with Native American Tribes in several states. The management of the
Company's Native American gaming facilities is conducted through Capital
Gaming Management, Inc. ("CGMI"), a wholly-owned subsidiary of the Company.
The development of the Narragansett Casino project is conducted through
Capital Development Gaming Corp. ("CDGC"), a wholly-owned subsidiary of the
Company. The Company is also active in seeking new opportunities in Native
American Gaming and secondary gaming market jurisdictions.

         In order to enter the Native American, riverboat, dockside casino or
any other aspect of the gaming industry, the Company will be subject to
regulation by each state in which it conducts business, and to a certain
extent under Federal, Tribal and (in some cases) state law with respect to
Native American gaming. In jurisdictions where gaming has recently been
legalized, gaming cannot begin until a licensing and regulatory framework is
promulgated and regulatory commissions are appointed, staffed and funded. The
regulatory framework adopted by any jurisdiction may impose delays in
licensure, restrictions or costs that would materially detract from the
profitability of gaming operations. The Company must obtain a gaming license
for each location where it will operate or manage a gaming casino, and each of
the Company's officers, directors, managers and principal shareholders are
subject to strict scrutiny and approval of the gaming commission or other
regulatory body of each state in which the Company may conduct gaming
operations. In addition, gaming on Native American lands is extensively
regulated, and the terms and conditions of management contracts must be
approved by the Tribes and certain regulatory entities. Changes in the
interests of principals must be approved, and the Company and certain of its
principals must be licensed, by Tribal and in some cases, state authorities.
There can be no assurance that the Company or any of its key personnel will
obtain the requisite licenses and approvals of the various state and Tribal
gaming commissions and the National Indian Gaming Commission ("NIGC") in a
timely fashion, if at all.

         The Company must also obtain liquor licenses from state regulatory
agencies for each of its proposed operations. Rules and regulations in this
regard are strict and the loss of such licenses is possible for regulatory
violations. The loss or suspension of a liquor license could significantly
impact a licensee's operations. Local building, health and fire codes and
similar regulations could also impact the Company's operations. Violations of
any such statutes, codes or regulations could have a material adverse impact
on the financial condition or operations of the Company.

         The Company's CGMI subsidiary currently manages and operates two
Native American gaming facilities, which CGMI has developed or expanded into
Class III gaming facilities.

                  o Tonto Apache Tribe - Payson, Arizona (Class III facility 
                    became operational in April 1995)

                  o Umatilla Tribes - Pendleton, Oregon (Class III facility
                    became operational in March 1995)

         CGMI also has a management and development agreement with the Pueblo of
Laguna tribe pursuant to which CGMI is developing a Class III gaming facility on
the tribe's sovereign lands located on I-40 west of Albuquerque, New Mexico.

         The Company's CDGC subsidiary has a management and development
contract with the Narragansett Tribe for the development of a Class III gaming
facility in Charlestown, Rhode Island.

                                     F-11

<PAGE>


         Disposal of Riverboat Gaming Operation

         The Company's former wholly-owned subsidiary, Crescent City Capital
Development Corp. ("CCCD"), was a 50% partner with Grand Palais Inc. in a
River City Joint Venture ("RCJV"), a general partnership formed to develop and
operate two riverboats in New Orleans, Louisiana. The joint venture, which was
accounted for on the equity method, was terminated in July 1995. The Company's
riverboat, the Crescent City Queen, opened on April 4, 1995. On June 9, 1995,
the riverboat casino operations in New Orleans was forced to cease due
primarily to significant revenue shortfalls which resulted in operating losses
that the Company could not continue to fund. On July 26, 1995, CCCD was
involuntarily petitioned for reorganization under Chapter 11 of the Federal
Bankruptcy Code. On July 28, 1995, the petition was changed to a voluntary
filing. On October 13, 1996, CCCD filed a Plan of Reorganization (the "January
Plan") under Chapter 11 which was confirmed on January 12, 1996. The January
Plan was predicated upon an agreement (the "MRI Agreement") to sell CCCD to
Mirage Resorts, Inc. ("Mirage") for $55,000,000 plus the assumption of certain
equipment liabilities of up to $6,500,000. The sale was contingent upon
certain waivers and conditions being achieved on or before January 24, 1996.
On January 24, 1996, Mirage announced that conditions to the closing of the
purchase were not satisfied by the contractual deadline and terminated the MRI
Agreement. On February 21, 1996, the Company entered into a stock purchase
agreement (the "CMC Agreement") with Casino Magic Corp. ("CMC") to transfer
the ownership of CCCD and substantially all of its assets to a wholly-owned
subsidiary of CMC. An Amended Plan of Reorganization (the "Amended Plan"),
which was predicated upon the CMC Agreement, was filed by CCCD and was
confirmed by the Bankruptcy Court on April 29, 1996. On May 13, 1996, the
Company completed the sale of CCCD for an aggregate purchase price of
$56,500,000, consisting of $15,000,000 in cash, Purchaser Notes of
$35,000,000, and the assumption of up to $6,500,000 in certain equipment
liabilities. The Purchaser Notes, due no later than May 13, 1999, had an
interest rate of 11-1/2% per annum, payable quarterly beginning August 13,
1996, and was guaranteed by CMC. The Purchaser Notes were paid in full on July
29, 1996.

         For the period ended May 28, 1997, the Company recorded a gain on the
disposal of the riverboat gaming asset of $364,000 which represented an
adjustment to the carrying value of liabilities relative to the sale.

         For the year ended June 30, 1996, the Company recorded costs of
operations of the riverboat gaming facility of $4,903,000, which included (i)
legal fees of $2,192,000, (ii) equity in loss of the RVJV of $1,262,000, (iii)
other reorganization items of $1,240,000, (iv) interest income of $11,000 and,
(v) interest expense of $220,000. Additionally, the Company recorded a gain on
sale of the riverboat gaming assets of $17,542,000.


         Funds Held By Trustee for Old Senior Secured Noteholders

         As of June 30, 1996, approximately $22,500,000 was reflected as a
contra-liability to the Old Senior Secured Notes and represented cash held by
the Trustee for the benefit of the Old Senior Secured Noteholders against
obligations owed by the Company to the Noteholders. The obligations included
approximately $124,000,000 in Old Senior Secured Notes, a consent fee note
payable of $1,350,000 and accrued interest of approximately $20,700,000. In
addition, the Trustee held $28,000,000 in Purchaser Notes due from CMC as a
result of the sale of CCCD which was reflected as notes receivable of
$35,000,000 and accrued expenses of $7,000,000. On July 29, 1996, the Trustee
distributed to the Old Senior Secured Noteholders, an aggregate of
approximately $50,000,000, consisting of $28,000,000 in Purchaser Notes and
approximately $22,000,000 in cash. The remaining $500,000 was held in escrow
to indemnify CMC for any undisclosed liabilities arising from the sale of
CCCD.


                                     F-12

<PAGE>

         Reorganization

         On December 23, 1996 (the "Petition Date"), Capital Gaming
International, Inc., apart from its subsidiaries, filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code (the "Code")
in the United States Bankruptcy Court for the District of Camden, New Jersey 
(the "Court"). The petition did not involve the Company's wholly-owned
subsidiaries. The Company operated as a debtor-in-possession until March 19,
1997 when its Plan (as defined below) was confirmed by the Court. As a
debtor-in-possession, the Company was authorized to operate its business but
could not engage in transactions outside its ordinary course of business
without the approval of the Court.

         Subject to certain exceptions under the code, the Company's
Reorganization Proceedings automatically enjoined the continuation of any
judicial or administrative proceedings against the Company. Any creditor
actions to obtain possession of or control over property of the Company or to
create, perfect or enforce any lien against the property of the Company were
also enjoined. As a result, the creditors of the Company were precluded from
collecting pre-petition debts without the approval of the Court.

         On the Petition Date, the Company filed a pre-negotiated Plan of
Reorganization (together with all subsequent amendments and modifications, the
"Plan") and an accompanying disclosure statement together with all subsequent
amendments and modifications, (the "Disclosure Statement"). The Disclosure
Statement was approved by the Court on February 6, 1997.

         On March 19, 1997, the Court conducted a hearing regarding
confirmation of the Plan and entered an order confirming the Plan submitted by
the Company as modified by the order. As contemplated by the Plan, on May 28,
1997 (the "Effective Date") the Company emerged from Chapter 11 and
consummated the Plan.

         Plan of Reorganization

         The Plan provided for the continuation of Capital Gaming
International, Inc.'s operations. Under the Plan, the old common stock interests
in Capital Gaming International, Inc. were canceled and the Company, as
reorganized, issued new common stock (the "New Common Stock").

         The Plan provides generally that creditors of the Company will
receive distributions as follows: (1) holders of Old Secured Notes received in
the aggregate (A) on account of their Allowed Secured Claims, their Pro Rata
Share of the New Secured Notes having a principal face amount of $21,450,000
and 1,225,000 shares of the New Common Stock of the Company; and (B) on
account of their unsecured Deficiency Claims totaling $80,688,850, the same
treatment as is afforded to holders of General Unsecured Claims (see
subparagraph (iii) below); (ii) holders of Secured Claims that are not Claims
arising out of Old Secured Notes receive, at the option of the Company: (X)
such treatment as will leave such holders unimpaired; (Y) payment in full, in
cash; or (Z) return of such holder's collateral in the possession of the
Company; and (iii) holders of General Unsecured Claims against the Company
received their pro rata shares of (A) 525,000 shares of New Common Stock; (B)
the right to receive the net proceeds of Avoidance Actions recovered pursuant
to Section 9.4 of the Plan; and $1,100,000 in New Secured Notes. With respect
to Class 4 Claims, the indenture Trustee could receive no more than 375,000
shares of New Common Stock and $550,000 in New Secured Notes on account of its
allowed Class 4 Claim, and any share the Indenture Trustee would otherwise
receive on account of its Class 4 Claim in excess of 375,000 shares and any

                                     F-13

<PAGE>


New Secured Notes the Indenture Trustee would otherwise receive on account of
its Class 4 Claim in excess of $550,000 in New Secured Notes is required to be
distributed pro rata to all other holders of Allowed Class 4 Claims.

         Holders of Old Common Stock of the Company received their pro rata
share of 50,000 shares of New Common Stock of the Company. Existing warrants,
options and other rights to acquire Old Common Stock of the Company
(collectively, the "Old Options") were canceled and holders of such rights
received no distributions of property on account thereof.

         The terms of the Plan provide for the discharge of all claims against
the Company and/or release of liability only of the Company, its wholly-owned
subsidiaries and their respective present and former directors, officers, and
employees, the Indenture Trustee and the Noteholders, Steering Committee of
all liabilities in any way related to the Company. In addition, a critical
element of the Plan is the release by the Indenture Trustee and each of the
Noteholders of all their claims against subsidiaries of the Company arising
out of guaranties and pledges, except for the treatment of their Claims
provided under the Plan.

         Liabilities Subject to Compromise

         Prior to the Effective Date, the Company incurred certain secured and
unsecured claims prior to the filing of the Company's Chapter 11 case on the
Petition Date. Additional claims arose subsequent to the Petition Date
resulting from the rejection of certain executory contracts and from the
allowance by the court of contingent and/or disputed claims. Creditors and
other parties in interest filed claims with the Court which were in excess of
the amounts recorded in the Company's records. These differences were related
to errors, duplicative claims and overstatement of claims.

         Liabilities subject to compromise consisted of the following
immediately preceding the Effective Date:

Senior Secured Notes                                   $      102,971,000
Consent Fee, Payable to Noteholders                             1,350,000
Guarantee of Notes Payable to Banks                             2,141,000
Notes Payable to Republic Corporate Services                   22,630,000
Trade Payables and Accrued Expenses                             3,297,000
                                                       ------------------
                                                       $      132,389,000
                                                       ==================

         Fresh Start Reporting

         In accordance with AICPA Statement of Position 90-7 "Financial
reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7),
the Company was required to adopt fresh-start accounting on the Effective Date.
The effect of the adoption of fresh-start reporting is reflected in the June 30,
1998 and 1997 Consolidated Balance Sheets. In adopting fresh-start reporting,
the Company, with the assistance of its financial advisors, estimated its
reorganization value, which represents the fair value of the entities under
reorganization, before considering liabilities. In order to accomplish this, the
Company provided its financial advisors with cash flow projections for the
post-reorganization operation of the Company's business under different
scenarios. The scenarios, which ranged from three to eight years of
post-reorganization operation, included assumptions related to the completion of
the Narragansett project and the attraction of new management agreements. Due to
the uncertainty surrounding the Narragansett project and the ability of the
Company to attract and enter into new management agreements, there were
significant differences in the cash flow projections under the various
scenarios. Based upon their knowledge and experience in the gaming industry


                                     F-14
                       
<PAGE>


generally, and their familiarity with the Company's business and description
of its contracts, the financial advisors applied appropriate probability
factors to each of the scenarios, which reflected, among other things, the
inherent risks in realizing the assumptions underlying each of the scenarios.
The result of applying the factors to each of the scenarios produced a
probability weighted cash flow projection for the Company as a whole. Due to
the Company's expected NOL carryforwards, no consideration was given to the
effect of federal income taxes. Further, as the Company has no significant
tangible fixed assets, no consideration was given to the terminal value of the
Company. A discount rate of 12% was then applied to the combined cash flow
projections to determine their present value. This resulted in as estimated
fair value of the Reorganized Company of approximately $23,500,000, which was
approved by the Bankruptcy Court during its confirmation hearings. The excess
of the reorganization value over the fair market value of the net assets,
totaling approximately $9,339,000, is reported as excess reorganization value
in the accompanying consolidated balance sheet as of June 30, 1997 and will be
amortized over a period of four years.

         Excess Reorganization Value at June 30, 1998 includes the effect of a
reclassification of approximately $426,000 of Restricted Funds. The $426,000
was previously reported as held by the Indenture Trustee for the benefit of
the Senior Secured Noteholders. An audit conducted by the Indenture Trustee
determined that these funds were held for the benefit of the Old Senior
Secured Noteholders as a result of the sale of the Company's wholly-owned
subsidiary, Crescent City Capital Development Corp. (CCCD) in May 1996. The
sale of CCCD and the previously reported $426,000 in Restricted Funds relate
to the Predecessor Company. Had the $426,000 not been reported for the benefit
of The New Senior Secured Noteholders on the Consolidated Balance sheets of
the Predecessor Company, the Excess Reorganization Value of the Reorganized
Company would have been $9,765,000 or $426,000 higher than the $9,339,000
recorded on May 28, 1997, the Date of Reorganization.

         The adjustments to reflect the consummation of the Reorganization
(including the gain on extinguishment of debt and other pre-petition
liabilities) and the adjustment to record assets and liabilities at their fair
values have been reflected in the June 30, 1998 and 1997 consolidated financial
statements. Accordingly, a vertical black line is shown in the consolidated
financial statements to separate post-Reorganization operations from those
prior to May 28, 1997. As a result of adopting fresh-start reporting the
reorganized Company's consolidated financial statements are not comparable
with those prepared before the Effective Date.

         Reorganization adjustments for the period ended May 28, 1997 were
comprised of:

          Legal/Professional Fees                    $(1,716,000)
          Interest Income                                 30,000
          Write-off of Goodwill                         (405,000)
          Excess Reorganization Value                  9,265,000
          Adjustments to Capital Stock                37,217,000
          Adjustment to Paid in Capital                7,877,000
                                                     -----------
               Total                                 $52,268,000
                                                     ===========

        
         Reorganization fees paid to management for the period ended May 28,
1997, included in Reorganization Items amounted to $1,463,000 for the year
ended June 30, 1997. According to the Plan of Reorganization, this was
comprised of (i) $900,000 from the discontinuance and sale of the riverboat
operation in New Orleans, (ii) $550,000 in New Senior Secured Notes, and (iii)
$13,000 in New Common Stock grants.


                                     F-15

<PAGE>


                  The effect of the Plan of Reorganization on the Balance
Sheet as of May 28, 1997, is as follows:


<TABLE>
<CAPTION>


                                     Prereorganized                            Exchange of                          Reorganized
                                      Balance Sheet       Debt Discharge          Stock           Fresh Start      Balance Sheet
                                     ---------------      --------------       -----------        -----------      -------------
Assets
------
<S>                                      <C>              <C>              <C>                    <C>               <C>
Current Assets
  Cash and Cash Equivalents               $3,250,000      $           0    $             0        $         0       $3,250,000
  Restricted Funds in Escrow                 924,000                  0                  0                  0          924,000
  Interest Receivable                         78,000                  0                  0                  0           78,000
  Native American Management Fees            
   and Expenses Receivable                   813,000                  0                  0                  0          813,000
  Current Portion-Native American          
   & Other Loans Receivable                3,931,000                  0                  0                  0        3,931,000
  Notes Receivable From Officers'            250,000                  0                  0                  0          250,000
  Prepaid Expenses and Other Current         
   Assets                                    638,000                  0                  0                  0          638,000
Property and Equipment                        93,000                  0                  0                  0           93,000
Excess Reorganization Value                        0                  0                  0          9,339,000        9,339,000
Other Assets                                       0                  0                  0                  0                0
  Native American Loans Receivable         4,032,000                  0                  0                  0        4,032,000
  Investments in Native American           
   Management Agreement                    2,002,000                  0                  0                  0        2,002,000
Notes Receivable, Other                       80,000                  0                  0                  0           80,000
Deferred Financing Costs                   4,311,000                  0                  0         (4,311,000)               0
Goodwill                                     405,000                  0                  0           (405,000)               0
Deposits and Other Assets                          0                  0                  0                  0                0
                                         -----------      -------------    ---------------         ----------      -----------    
                  TOTAL ASSETS           $20,807,000      $           0    $             0         $4,623,000      $25,430,000
                                         ===========      =============    ===============         ==========      ===========
Liabilities and Shareholders'
Equity (Deficit)
-----------------------------
  
Current Liabilities
Accounts Payable and Accrued Expenses     $1,930,000      $           0    $             0        $         0       $1,930,000
Accrued Interest on Secured Notes                  0                  0                  0                  0                0
12.0% Senior Secured Notes Payable                 0         23,100,000                  0                  0       23,100,000
Liabilities Subject to Compromise        132,389,000       (132,389,000)                 0                  0                0
Common Stock                              37,617,000                  0        (37,617,000)           400,000          400,000
Additional Paid In Capital                 7,877,000                  0         (7,877,000)                 0                0
Retained Earnings (Deficit)             (159,006,000)          (550,000)        45,494,000          4,223,000                0
                                                   0        132,389,000                  0                  0                0
                                                   0        (22,550,000)                 0                  0                0
                                         -----------      -------------    ---------------         ----------      -----------    
TOTAL LIABILITIES & EQUITY               $20,807,000      $           0    $             0         $4,623,000      $25,430,000
                                         ===========      =============    ===============         ==========      ===========
</TABLE>

                                     F-16



<PAGE>



 (2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation

         The accompanying consolidated financial statements of the Reorganized
Company (Period beginning May 29, 1997) and the Predecessor Company (Periods
prior to May 29, 1997) include the accounts of Capital Gaming International,
Inc. and its wholly owned subsidiaries Capital Gaming Management Inc. (CGMI)
and Capital Development Gaming Corp. (CDGC). Periods prior to July 1, 1996
also include a former subsidiary, Cresent City Development Corp. (CCCD).
Intercompany balances and transactions have been eliminated.

         Cash and Cash Equivalents

         Cash and cash equivalents includes cash in banks and overnight
investments. The Company considers all highly-liquid investments purchased
with an original maturity of three months or less to be cash equivalents. The
carrying amount of cash equivalents approximates fair value due to the
short-term maturity of those investments.

         Furniture, Fixtures and Equipment

         Furniture, fixtures and equipment are stated at cost, depreciation
and amortization are computed using the straight-line method over the
estimated useful life - primarily 3 to 7 years.

         Revenue Recognition

         The revenues recognized in these financial statements from Native
American Casino Management Fees are those of CGMI and represent management
fees derived primarily from Class III (gaming) facilities. Management fees are
recognized as revenue when earned based upon earnings sharing arrangements
detailed in the respective management contracts with the Native American
Tribes. 

         Excess Reorganization Value

         Excess Reorganization Value is amortized on a straight line basis
over four years. When changes in circumstances require, management evaluates
events and circumstances in order to determine whether the recorded balance
has been impaired. If impairment is deemed to exist, the excess reorganization
value will be written down to fair value. (See Note [5]).

         Income Taxes

         The Company accounts for income taxes pursuant to Statement of 
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS
No. 109 requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards and of deferred tax liabilities
for taxable temporary differences. Measurement of the current deferred tax
liabilities and assets is based on provisions of enacted tax law; the effects
of future changes in tax laws or rates are not anticipated. Deferred tax
assets primarily result from net operating loss carryforwards and impairment
of assets recognized in different periods for financial reporting and tax
purposes.

         Capitalization of Development Costs

         The costs associated with developing, negotiating and securing new
management agreements are expensed as incurred until such time when management
believes the development of a casino facility is likely. This juncture in
development requires, at a minimum, a management contract in effect and
indications that regulatory approvals and licensure is probable. Subsequent
costs are capitalized and included in Investments in Native American
Management Agreements. Amortization of capitalized amounts related to new
contracts begins when the facility opens.

                                     F-17

<PAGE>
         Earnings Per Share

         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which is
effective for financial statements issued for periods ending after December 15,
1997. Accordingly, earnings per share data in the financial statements for the
year ended June 30, 1998 have been calculated in accordance with SFAS No. 128.
Prior period earnings per share data have been recalculated as necessary to
conform prior year data to SFAS No. 128. Earnings per share data for the
Predecessor Company have not been presented because, due to the reorganization
and implementation of fresh start reporting, they are not comparable to
subsequent periods.

         SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15,
"Earnings per Share," and replaces its primary earnings per share with a new
basic earnings per share representing the amount of earnings for the period
available to each share of common stock outstanding during the reporting period.
SFAS No. 128 also requires a dual presentation of basic and diluted earnings per
share on the face of the statement of operations for all companies with complex
capital structures. Diluted earnings per share reflects the amount of earnings
for the period available to each share of common stock outstanding during the
reporting period, while giving effect to all dilutive potential common shares
that were outstanding during the period, such as common shares that could result
from the potential exercise or conversion of securities into common stock. 

         The computation of diluted earnings per share does not assume
conversion, exercise, or contingent issuance of securities that would have an
antidilutive effect on earnings per share (i.e., increasing earnings per share
or reducing loss per share). The dilutive effect of outstanding options and
warrants and their equivalents are reflected in dilutive earnings per share by
the application of the treasury stock method which recognizes the use of
proceeds that could be obtained upon exercise of options and warrants in
computing diluted earnings per share. It assumes that any proceeds would be used
to purchase common stock at the average market price during the period. Options
and warrants will have a dilutive effect only when the average market price of
the common stock during the period exceeds the exercise price of the options or
warrants. As of June 30, 1998 and 1997, the Company has contingently issuable
shares of a common stock which are not included in earnings per share
calculations as they have on antidilutived effect on earning per share.

         Reorganization Items

         Reorganization items consist of income, expenses and other costs
directly related to the reorganization of the Company, the Chapter 11 filings
of both its former CCCD subsidiary and the reorganization of the parent
company, and subsequent reorganization efforts.

         Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

(3)      NATIVE AMERICAN GAMING OPERATIONS

         Facility Openings and Summarized Financial Information - On March 10,
1995, the Umatilla Tribe opened the 40,000 square foot Wildhorse Gaming Resort
in Pendleton, Oregon. This facility, under management by the Company offers
video slot machines, keno, non-banking table games, off-track betting (OTB) and
high stakes bingo. The first phase of this development opened on November 5,
1994. During the year ended June 30, 1998, the periods May 29, 1997 to June 30,
1997 and July 1, 1996 to May 28, 1997 and the year ended June 30, 1996 the
facility produced approximately $4,754,000, $337,000, $3,529,000, and
$3,210,000, respectively, in management fees for the Company.

         On April 27, 1995, the Tonto Apache Tribe opened the 35,000 square foot
Mazatzal Casino located approximately 70 miles north of Phoenix, Arizona. The
casino features slot machines, keno, non-banking table games and high stakes
bingo. The Company, as manager of the casino, collected approximately
$2,276,000, $232,000, $1,823,000, and $1,961,000 in management fees for the year
ended June 30, 1998, the periods May 29, 1997 to June 30, 1997 and July 1, 1996
to May 28, 1997 and the year ended June 30, 1996, respectively.

         The Muckleshoot Tribe opened the first phase of its Muckleshoot Casino
on April 28, 1995, and presently offers table games, poker games, keno and OTB.
The facility is located in the Seattle-Tacoma metropolitan area. The final phase
of this facility opened on September 8, 1995 with gaming space of 65,000 square
feet. The Company, as manager of the facility, collected approximately
$1,120,000, $184,000, $2,176,000, and $2,038,000 for the year ended June 30,
1998, the periods May 29, 1997 to June 30, 1997 and July 1, 1996 to May 28, 1997
and the year ended June 30, 1996, respectively.

<PAGE>

         On January 30, 1998 the Muckleshoot Tribal Gaming Commission summarily
notified the Company that the Company's gaming license had been revoked based on
an assertion that the Company's certification with the Washington State Gambling
Commission ("WSGC") had lapsed. Additionally, on the same date the Muckleshoot
Tribal Council purported to terminate the Company's management contract on
similar grounds. Subsequently, the WSGC had notified the Muckleshoot Tribe that
the Company remained in good standing with the WSGC and would be immediately
recertified upon request of the Muckleshoot Tribe. Moreover, on April 29, 1998
the WSGC notified the Company that it had been recommended for the issuance of a
gaming license.

         In response to the termination of the contract, the Company commenced
litigation in the U.S. District Court in the Western District of Washington at
Seattle, ("U.S. District Court") which asserted, among other things, breach of
contract. On July 20, 1998 the Company and its subsidiary, CGMI, and the
Muckleshoot Tribe achieved an amicable resolution to the legal proceedings (See
footnote [23]).

         During the year ended June 30, 1996, the Cow Creek Management
contract was terminated in exchange for a payment of $3,000,000. The Cow Creek
facility generated an additional $618,000 in management fees during the year
ended June 30, 1996.


                                     F-18

<PAGE>




(4)      RHODE ISLAND DEVELOPMENT PROJECT

         Narragansett Contract - Native American Casino (Rhode Island). 

         Through CDGC, the Company entered into a seven-year management and
development contract with the Narragansett Indian Tribe (the "Narragansett
Contract") for the development of a Class II and Class III gaming facility in
Rhode Island. The Narragansett Contract provides for the Company to receive a
management fee of 30% of net distributable profits (as defined therein) of the
gaming facility for the first five years, commencing on the opening of the
facility and 20% for the remaining two years. As part of the Narragansett
Contract, the Company is required to advance funds for the development of the
Rhode Island Project and the construction of the gaming facility which will be
repaid over a seven-year period commencing with opening of the facility. The
Narragansett Contract was submitted to the National Indian Gaming Commission
("NIGC") for approval in June 1995.

         In August 1996, the NIGC submitted comments on the Narragansett
Contract. As a result of the Decision (as defined below) invalidating the
Compact (as defined below), the NIGC informed the Company and the Narragansett
Tribe that the NIGC would only consider a contract relating solely to Class II
gaming. In light of this, the Company bifurcated the Narragansett Contract
(the "Management Agreement") and submitted it on June 21, 1996 for review and
approval by the NIGC of only the portions relating to Class II gaming. The
Company reclassified the Class III contract as a development contract until
such time as a Tribal/State Compact for Class III gaming was signed. However,
as a result of the Chafee Rider (as defined below), on December 16, 1996, the
NIGC declined further review of the Management Agreement.

         In declining to review the Management Agreement, the Chairman of the 
NIGC asserted that as a result of the application of the Chafee Rider, the
Narragansett Tribe lost its rights to conduct both Class II and Class III
gaming under the Indian Gaming Regulatory Act ("IGRA"). An appeal of the
NIGC's action was filed on December 20, 1996, and on June 17, 1997, the NIGC
issued a final decision upholding the Chairman's actions.

         In light of the Decision (as defined below) to invalidate the Compact
and the application of the Chafee Rider (as defined below), no assurance can
be given if, or when, such approval will be obtained or if the Narragansett
Tribe will be able to establish a commercial gaming enterprise (Class II or
Class III) under IGRA. Additionally, it is possible, as a condition of
obtaining such approval, that the NIGC will require material modifications to
the Narragansett Contract.

         Tribal/State Compact

         In August 1994, a Tribal/State Compact (the "Compact") was entered
into between the Narragansett Tribe and Governor Bruce Sundlan of Rhode
Island. In October and November of 1994, two lawsuits were filed, including
one filed by Rhode Island Attorney General Pine (the "Pine Case") seeking to
void the Compact on the grounds that the Governor of Rhode Island lacked the
authority to bind the State of Rhode Island absent State Legislative approval.
In 1995, Rhode Island's new Governor, Governor Almond, joined in the Pine
Case.

         In February 1996, the United States District Court for the District of
Rhode Island decided that the Compact was void for lack of State Legislative
approval (the "Decision"). The State of Rhode Island has subsequently refused to
negotiate with the Narragansett Tribe. In light of this Decision, and similar
decisions in other states, the Secretary of the Interior (the "Secretary") had
requested comments as to whether the Secretary has the authority to adopt
Secretarial procedures to permit gaming under IGRA for the Tribes in states
(such as Rhode Island) that refuse to negotiate Tribal/State Compacts in good
faith. On January 22, 1998, a Proposed Rule on Class III Gaming Procedures
("Proposed Rule") was promulgated by the Department of the Interior.

                                      F-19
<PAGE>

         Department of the Interior Proposed Rule on Class III Gaming Procedures

         The proposed rule sets forth the authority and procedures by which the
Department of the Interior will review requests for approval for Class III
gaming when a State interposes its immunity from suit brought by an Indian Tribe
seeking to enter into a compact with the State pursuant to which gaming
activities would be governed. The proposed rule also sets forth the process and
standards under which such procedures would be adopted. Written comments
concerning the proposed rule were due with the Department on or before June 22,
1998. The comments are currently under review. In March, the U.S. Senate voted
to prohibit the Department of the Interior from proceeding with the regulations.
However, the ban, which was part of an emergency spending bill, was lifted from
the bill by a joint U.S. House - U.S. Senate conference committee. It is unknown
what further action, if any, Congress may take concerning the proposed rule.
Considerable opposition to the proposed rule has been received from at least 25
states. Additionally, the National Gambling Impact Study Commission voted in
July to recommend to the Department of the Interior that no final rules be
issued or published until after the Commission submits its report to Congress in
June of 1999. As a result, in September 1998, Congress passed certain
legislation prohibiting the Department from proceeding any further with the
proposed rule prior to October 1, 1999. There can be no assurance as to when a
final rule will be issued or whether the final rule will apply to the
Narragansett Tribe in light of the Chafee Rider (defined below). However, as a
result of the Chafee Rider (as defined below), there can be no assurance that
the Secretary will have the authority under the final rules to impose a
Tribal/State Compact between the Narragansett Tribe and the State of Rhode
Island.

         The Chafee Rider

         In September 1996, Federal legislation was passed as a non-relevant
rider (introduced by U.S. Senator John Chafee of Rhode Island, the "Chafee
Rider") to the must-pass Omnibus Appropriations Bill which has the effect of
singling out the Narragansett Tribe's reservation (where the gaming facility
was planned) for exclusion from the benefits of IGRA. The Chafee Rider, which
the Company believes discriminates against the Narragansett Tribe by treating
it differently than every other Tribe in the United States, was passed without
hearings or debate, with no consultation with the Narragansett Tribe and over
the objections of ranking members of the Senate Indian Affairs Committee.

         In February 1997, as a result of the NIGC's decision and the
application of the Chafee Rider, the Narragansett Tribe initiated litigation in
the United States District Court for the District of Columbia (the "District
Court"), naming the NIGC and its Chairman as defendants. In this action, the
Narragansett Tribe sought a declaration of the District Court, that among other
things, the Chafee Rider is unconstitutional under the equal protection
component of the Fifth Amendment to the U.S. Constitution, and an injunction
requiring the NIGC to review the Management Agreement. Both the Narragansett
Tribe and the NIGC filed cross-motions for summary judgement in the matter. In
August 1997, the District Court granted the NIGC's motion for summary judgement.
An appeal has been filed by the Narragansett Tribe in the United States Court of
Appeals for the District of Columbia and is pending. The United States Court of
Appeals has held oral argument on the matter and the parties are awaiting the
court's decision.

         In May 1997, a Congressional Review of the Chafee Rider was initiated
with a hearing before the Committee on Resources of the U.S. House of
Representatives (the "Committee"). The hearing included testimony from the U.S.
Department of the Interior, the Narragansett Tribe and the National Council of
American Indians, all of whom testified in support of the repeal of the Chafee
Rider, as well as several political leaders from the State of Rhode Island who
supported the Chafee Rider. In June 1997, legislation that would amend and
effectively repeal the Chafee Rider ("H.R. 1983") was introduced in the House of
Representatives by Rep. Patrick J. Kennedy (D-RI), a member of the Committee,
and co-sponsored by Rep. Don Young (R-AK), the Chairman of the Committee and
Rep. Dale E. Kildee (D-MI), a member of the Committee and Co-Chairman of the
Congressional Native American Caucus. H.R. 1983, known as "The Narragansett
Justice Act," has subsequently cleared the Committee. No assurances can be given
as to the ultimate outcome of H.R. 1983.
<PAGE>

         Ongoing Project Development

         Unless the Chafee Rider is overturned, the Narragansett Tribe is
precluded from establishing a Class II or Class III gaming facility under IGRA.
Under Rhode Island State Law, therefore, the Narragansett Tribe's only recourse
to establish a gaming facility, absent a repeal of the Chafee Rider, is to
submit the issue to a statewide and local referendum. As a result of the Chafee
Rider, the Narragansett Tribe had focused efforts on seeking voter approval of a
gaming facility to be located in Providence, Rhode Island. The earliest date
upon which any such referendum could be held is November 2000. In June 1998 the
Rhode Island General Assembly passed a bill requiring the state legislature's
approval prior to any such referendum question being placed on the ballot.
Additionally, the host city or town must also approve any such referendum
question prior to it being placed on the ballot. There can be no assurance that
any such referendum would be successful or, if successful, what the ultimate
scope of permitted gaming would be.

         In spite of the set-backs caused by the invalidation of the Compact and
the application of the Chafee Rider, the Company intends to pursue the Rhode
Island Project. There can be no assurance that any legislative, judicial or
administrative efforts will be successful. 


                                      F-20
<PAGE>

         The Company has continued funding the on-going development costs of the
Rhode Island Development Project. None of these costs have been capitalized.
Included in Native American Gaming Development Costs in the statement of
operations for year ended June 30, 1998, the periods May 29, 1997 to June 30,
1997 and July 1, 1996 to May 28, 1997 and the year ended June 30, 1996 are
approximately $2,212,000, $532,000, $1,799,000, and $1,899,000, respectively in
costs related to the development of this management contract. At June 30, 1998,
and 1997 approximately $9,318,000, and $7,432,000 is expected to be recoverable
by the Company only if and when a gaming facility is established by the
Narragansett Tribe as repayment will be made from the Net Distributable Profits
of the gaming facility.

         In March 1998, the Company entered into an option agreement for the
purchase of approximately 64 acres of fee simple real property in the cities of
Providence and Cranston, Rhode Island, some acres of which are underwater in the
Narragansett Bay (the "Optional Property"), to be utilized for the development
of the proposed Narragansett Casino (the "Option Agreement"). The Option
Agreement calls for option payments by the Company as follows: four monthly
payments of $5,333 from March 1998 through June 1998, six monthly payments of
$16,000 from July 1998 through December 1998, six monthly payments of $5,333
from January 1999 through June 1999, and six monthly payments of $16,000 from
July 1999 through December 1999 (collectively the "Option Payments"). Upon the
Company's timely payment of all Option Payments and prior to the Option
Agreement's expiration on December 31, 1999, the Company will have the option to
purchase the Optioned Property for $9.5 million. The Company may terminate the
Option Agreement at any time without cause by notifying the seller of the
Optioned Property; however, the Company will continue to be obligated to make
the Option Payments to the seller through December 1998. Minimum required Option
Payments for the next five fiscal years are scheduled as follows:

         Fiscal Year Ending June 30, 1999              $96,000
         Fiscal Years Thereafter                             0
                                                       -------
                                                       $96,000
                                                       =======
(5)      EXCESS REORGANIZATION VALUE

         Accumulated amortization and amortization expense of excess
reorganization value was approximately $2,625,000, and $2,432,000 as of June 30,
1998 and for the year ended June 30, 1998, and both accumulated amortization and
amortization expense was approximately $193,000 as of June 30, 1997 and for the
period May 28, 1997 to June 30, 1997.

         On June 30, 1998, the Company recorded a non-cash impairment loss of
$1,300,000 related to the write-down of the Company's excess reorganization
value. The Company has experienced an operating loss and an operating cash flow
loss for the year ended June 30, 1998. In addition, due to recent developments
relating to the Company's Narragansett gaming project in Rhode Island,
management has determined that this project has a lesser probability of becoming
operational. As a result of these circumstances, the projected future cash flows
of the Company are less than the carrying value of the asset; therefore, an
impairment loss has been recognized. The impairment asset is the excess
reorganization value which resulted from the Company's emergence from a Chapter
11 bankruptcy filing on May 28, 1997. This asset was written down to its
estimated fair value based on the discounted cash flows projected through May,
2001, the end of the asset's estimated life. The recognition of this impairment
was in accordance with the provisions of Statement of Financial Accounting
Standards No. 121 - "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of."

<PAGE>
 
(6)      INCOME TAXES
<TABLE>
<CAPTION>
         Components of Income tax expense:
                                                                  
                                          Reorganized Company         |                Predecessor Company                      
                                ----------------------------------    |     -----------------------------------------
                                                                      |
                                                     May 29, 1997     |     July 1, 1996          
                                 Year ended            Through        |       Through               Year ended   
                                June 30, 1998        June 30, 1997    |     May 28, 1997           June 30, 1996      
                                -------------        -------------    |     ------------           -------------      
<S>                            <C>                  <C>               |       <C>                    <C>             
Current:                                                              |                       
     Federal                   $          --        $     --          |       $     --                $     --       
     State                           336,000         (15,000)         |      ($123,000)               (321,000)     
                               -------------       ---------          |      ---------               ---------      
Current Expense                $     336,000       ($ 15,000)         |      ($123,000)              ($321,000)     
                               =============       =========                 =========               =========      
</TABLE>                                                         
                                                                 
         A reconciliation of Income tax (expense) benefit at the federal
statutory rate to the Company's effective Income tax (expense) benefit is as
follows:
<TABLE>
<CAPTION>
                                          Reorganized Company         |                Predecessor Company                      
                                ----------------------------------    |     -----------------------------------------
                                                                      |
                                                     May 29, 1997     |     July 1, 1996            
                                 Year ended            Through        |       Through               Year ended    
                                June 30, 1998        June 30, 1997    |     May 28, 1997           June 30, 1996    
                                -------------        -------------    |     ------------           -------------    
<S>                            <C>                  <C>               |       <C>                    <C>            
Federal Income Tax Benefit                                            |
(Expense) at the Statutory         2,318,000        $454,000          |   ($15,100,000)             $5,098,000    
Rate                                                                  |                        
Amortization of Excess                                                |
 Reorganization Value               (827,000)             --          |             --                      --
State Tax Benefit, (Expense)                                          |
Net of Federal Tax Benefit          (336,000)        (15,000)         |       (123,000)               (321,000)   
(Non) Recognition of NOL                                              |                        
Carryforward                      (1,491,000)       (454,000)         |     15,100,000              (5,098,000)   
Current Expense                   $ (336,000)       $(15,000)         |      $(123,000)              ($321,000)   
</TABLE>                            
                          
                                     F-21                     
<PAGE>                                                             
                                                                   
                                                                   
                                                                   

(6) Net Operating Loss Carryforwards ("NOLs")

         The following description of the Company's net operating loss
carryforwards is based upon management's analysis of the application of the
relevant sections of the Tax Code to the net operating loss carryforwards of
the Company. There can be no assurance that the Internal Revenue Service or
the courts will agree with management's analysis. There are substantial risks
associated with the Company's utilization of the NOLs.

         The term "Gross NOLs" means the local NOLs reported to the Internal
Revenue Service on the federal income tax returns of the particular taxpayer,
before the application of any reductions and related adjustments. Based on its
federal income tax returns for the years through June 30, 1996, the Company
and its subsidiaries reported cumulative gross NOLs of approximately
$107,000,000. Under Section 172(b) of the Internal Revenue Code of 1986, as
amended (the "Tax Code") as in effect for those years unused. NOLs expire
after fifteen taxable years from the taxable year of a loss. Because these
losses were generated in 1994, 1995 and 1996, they should expire in 2009, 2010
and 2011 respectively.

         Under the Plan, unsecured indebtedness of the Company with an
aggregate face amount of approximately $110,000,000 was canceled. Generally,
Tax Code ss. 108 provides that a debtor whose indebtedness is canceled must
include the amount of canceled indebtedness in gross income to the extent the
indebtedness canceled exceeds any consideration (e.g., cash, notes, stock or
other property) given for the cancellation. Tax Code ss. 108 further provides,
however, that if a taxpayer is the subject of a bankruptcy case and the
cancellation of indebtedness ("COD") is pursuant to a plan approved by the
Bankruptcy Court, the excess amount canceled is not required to be included in
gross income. Instead, any such excess amounts so excluded from gross income
reduce prescribed tax attributes of the debtor, including NOLs and the bases
of the assets of the debtor, in a specified order of priority beginning with
NOLs. Management of the Company believes that $75,500,000 of its Gross NOLs of
approximately $107,000,000 as of June 30, 1996 must be reduced to take into
account cancellation of indebtedness of the Company pursuant to the Plan.

         The term "Net NOLs" means the amount of NOLs of the particular
taxpayer for federal income tax purposes adjusted to reflect reductions and
related adjustments required under Tax Code ss. 108 and Tax Code ss.
382(1)(5), assuming that Tax Code ss. 382(1)(5) applies, but subject to
Internal Revenue Service audits, subsequent changes in the ownership of the
Company and effects under Tax Code ss. 382, and the application of Tax Code
Sections 269 and 384. After taking into account the reorganization of the
Company pursuant to the Plan and assuming that Tax ss. 382(1)(5) applies,
management of the Company believes the Net NOLs of the Company and its
subsidiaries as of June 30, 1997 are approximately $31,500,000, although no
assurance can be given that the Company will be able to utilize these NOLs.

         If a corporation undergoes an "ownership change", Tax Code ss. 382
limits the corporation's right to use its NOLs each year to an annual
percentage (based on the federal long-term tax-exempt rate which was 5.64% in
May of 1997) of the fair market value of the corporation at the time of the
ownership change (the "Section 382 Limitation"). If an ownership change under
Tax Code ss. 382 is triggered, a corporation may also be restricted from
utilizing certain built-in losses and built-in deductions recognized during a
five-year recognition period after the ownership change. A corporation is
considered to undergo "an ownership change" if, as a result of changes in the
stock ownership by "5-percent shareholders" or as a result of certain
reorganizations, the percentage of the corporation's stock owned by those
5-percent shareholders has increased by more than 50 percentage points over
the lowest percentage of stock owned by those shareholders at any time during
a prescribed prior three-year testing period. Five-percent shareholders are
persons who hold 5% or more of the stock of a corporation at any time during
the testing period as well as groups of shareholders who are not individually
5-percent shareholders.

         Although a 50% ownership charge was expected to occur as a result of
the transfer of stock of the Company to creditors pursuant to the Plan, an
exception under Tax Code ss. 382(1)(5) is believed by management to have
applied as described as follows. Tax Code ss. 382(1)(5) provides that the
Section 382 Limitation will not apply to a loss corporation if (1) the
corporation, immediately before the ownership change, is under the
jurisdiction of a court in a United States Code Title 11 or similar case and

                                     F-22

<PAGE>



(2) the shareholders and creditors of the old corporation own at least 50% of
the total voting power and value of the stock of the corporation after the
"ownership change" as a result of being shareholders and creditors before the
change. Stock transferred to such creditors counts only if it is transferred
with respect to "old and cold" indebtedness. Indebtedness of creditors
qualifies as "old and cold" if the indebtedness (i) was held by a particular
creditor for at least 18 months before the date of the filing of the Chapter
11 case, or (ii) arose in the ordinary course of the trade or business of the
old loss corporation and was held by the person who at all times held a
beneficial interest in that debt. These requirements will not apply, however,
and thus a loss corporation generally may treat the debt as meeting the
holding period requirement, unless (i) the creditor becomes a 5-percent
shareholder of the loss corporation (directly or indirectly) immediately after
the ownership change or (ii) such creditor's participation in the formation of
the reorganization plan makes it evident to the debtor that the creditor has
not owned the debt in question for the required period.

         In an attempt to determine the extent to which the indebtedness of
creditors who received stock pursuant to the Plan of Reorganization qualifies as
"old and cold", the Company has obtained certain corroborative evidence as to
the status of certain creditors including written confirmation of the status of
certain creditors who are receiving New Common Stock. As a result, Management of
the Company believes that sufficient indebtedness of creditors will qualify as
"old and cold" under Tax Code ss. 382(1)(5) so that Tax Code ss. 382(1)(5) will
apply to this ownership change. No assurances, however, can be given that
corroborative documentation obtained by the Company will ultimately sustain such
analysis if challenged.

         If the Company is subject to the Section 382 Limitation as a result
of the consummation of the Plan, its annual Section 382 Limitation would be
equal to the product of the applicable long-term tax-exempt rate (5.64%) times
the fair market value of the equity of the Company immediately before the
ownership change. Thus, based on the value of the equity of the Company as of
the Effective Date of the Plan of $400,000, then the Company could use
approximately $23,000 of its NOLs each year until they expire.

         As a result of the Company's Chapter 11 proceedings, for financial
reporting, the Company recorded significant tax changes. Such changes are
reflected in the June 30, 1998 deferred tax asset amount as set forth below.
Substantial net operating loss carryforwards ("NOL's") generated in previous
years totaling approximately $107,000,000 were reduced by approximately
$75,500,000, leaving the Company with remaining NOL's totaling approximately
$31,500,000 assuming that section 382(1)(5) applies. The reductions are mainly
a result of the cancellation of Indebtedness income effected by the
reorganization.

         As of June 30, 1998, the Company has a net operating loss
carryforward of approximately $35,214,000 expiring as follows:

           June 30, 2009                        6,778,000
           June 30, 2010                       14,230,000
           June 30, 2011                       10,152,000
           June 30, 2012                        1,255,000
           June 30, 2018                        2,799,000
                                              -----------
           Total                              $35,214,000
                                              ===========

         Pursuant to SOP 90-7 any benefits the Company may receive from the
utilization of preconfirmation net operating loss carryforwards will first 
reduce excess reorganization value until exhausted and thereafter be reported
as a direct addition to paid-in capital.

                                     F-23

<PAGE>

         The Income tax effects of temporary differences that give rise to
significant portions of deferred income tax assets as of June 30, 1998 and
1997 are as follows:


                                             1998                  1997       
                                             ----                  ----       
Deferred Income Tax Assets:                             
   Federal Net Operating Losses         $    11,973,000       $    10,698,000 
                                                        
   State Net Operating Losses                 6,949,000             2,138,000 
                                        ---------------       ---------------  
Total Deferred Income Tax Assets             18,922,000            12,836,000 
                                                        
Valuation Allowance                         (18,922,000)          (12,836,000)
                                        ===============       ===============  
Net Deferred Income Tax Assets                      $ 0                   $ 0 
                                        ===============       ===============  
                                     

         The deferred tax asset valuation allowance is equal to the full
amount of the gross deferred tax asset because the realization of the assets
cannot be assured at this time.

(7)      LOANS RECEIVABLE - NATIVE AMERICAN TRIBES

         The Company has funded the development and construction of the Class
III Native American gaming facilities it manages and operates including
equipment financing amounting to approximately $3,300,000. As of June 30, 1998,
there was a total of approximately $3,693,000, in loans outstanding with
$2,249,000, to be realized within one year and $1,444,000, classified as
long-term. These notes bear interest rates at prime +1% (9.5% at June 30, 1998)
and have original scheduled repayments of 36 to 60 months. A maturity table is 
presented below:


             For the years ended:          
                                           
                June 30, 1999                              2,249,000
                June 30, 2000                              1,444,000
                June 30, 2001 and thereafter                     -0-
                                                          ----------
                TOTAL                                     $3,693,000
                                                          ==========
                                 
         Federally recognized Native American Indian tribes are sovereign
nations governed by federal statutes that are different than statutes
governing commercial enterprises in the United States. These receivables are
due from these tribes, collectively. While the Company has legal counsel
experienced in Indian gaming law and matters, there is the risk that the
Company may not prevail if collectibility is forced into litigation. The
Company does not require collateral from the Tribes to secure its receivable.
Management has no disputes with any Native American tribe that would place
doubt on the full collectibility of any of the Native American loan
receivables. The Company takes all necessary legal measures in the
documentation and preparation of agreement executed with Native American
Tribes, including the Tribe's waiver of sovereign immunity related to contract
enforcement.

         Loan Repayment and Contract Buy-out - Pursuant to the terms of the
Class III management contract between the Muckleshhot Tribe and the Company's
Native American gaming subsidiary - Capital Gaming Management, Inc. (CGMI) - the
Tribe has repaid CGMI approximately $7,600,000 that was advanced for developing,
constructing and equipping the gaming facility. Additionally, under the terms of
the Class III management contract, the annual management fee of 11.5% of gross
gaming revenues had been reduced to 3.9% simultaneously upon the repayment of
the loan by the Tribe in September 1995.

         The Company closed an agreement effective September 1, 1995 pursuant to
which the Cow Creek Bank of Umpqua Tribe of Indians bought out the remaining
term of the Management Agreement for the Tribe's gaming facility in Canyonville,
Oregon. The Tribe has paid the Company and its Native American

                                     F-24

<PAGE>

subsidiary $3,000,000 in consideration for early termination of the Management
Agreement and principal repayment of approximately $823,000. The buy-out of
future management fees of $3,000,000 and the principal repayment of $823,000
was paid to the Trustee for the Senior Secured Noteholders, less $200,000 for
expenses in connection with the transaction which was reimbursed to the
Company. The five year Management Agreement had less than two years remaining
prior to its expiration.

(8)      PROPERTY AND EQUIPMENT

         Property and equipment consist of the following as of June 30, 1998 and
1997:

                                                   1998             1997        
                                                   ----             ----        
  Office furniture, fixtures and equipment     $   131,000    $    112,000      
  Less accumulated depreciation                   (108,000)        (97,000)     
                                               -----------   -------------      
                                               $    23,000    $     15,000      
                                               ===========    ============      
                                             
         Depreciation expense for the year ended June 30, 1998, the periods May
29, 1997 to June 30, 1997 and July 1, 1996 to May 28, 1997 and the year ended
June 30, 1996 is $13,000, $3,000, $34,000, and $37,000, respectively, and is
included as part of depreciation and amortization expense.

(9)      INVESTMENT IN NATIVE AMERICAN MANAGEMENT AGREEMENTS
          
         The balance of $1,229,000, and $1,937,000 as of June 30, 1998 and 1997
in this caption on the balance sheet represents capitalized costs and payments
related only to the remaining Class III management agreements. The Company is
amortizing such amounts over five years on the straight line method. The
remaining lives of these management contracts is approximately two years.
Amortization for the year ended June 30, 1998, periods May 29, 1997 to June 30,
1997 and July 1, 1996 to May 28, 1997 and the year ended June 30, 1996, was
approximately $708,000, and $59,000, $687,000, and $860,000, respectively.
Accumulated amortization as of June 30, 1998 and 1997 was approximately
$2,119,000 and $1,290,000, respectively. When changes in circumstances require,
the management of the Company will evaluate whether the individual carrying
value of these assets has been impaired by comparing the carrying value to the
value of the projected net cash flow from related operations. As of June 30,
1998, management expects the assets to be fully recoverable (See footnote [23]
Subsequent Events).

(10)       NOTES RECEIVABLE FROM OFFICERS

         Pursuant to the Reorganization Plan and their respective amended
employment agreements, the Company's two senior executives borrowed a total of
$250,000 from the Company. These loans were evidenced by unsecured notes which
bore six percent (6%) simple interest. Both notes had a maturity date of May
28, 1998 and both were paid in full in December 1997. 

                                     F-25

<PAGE>


(11) DEBT AFTER REORGANIZATION

         Senior Secured Notes

         Pursuant to the Reorganization, the holders of the Old Notes, along
with certain unsecured creditors and key members of management, received, on a
pro rata basis, the New Senior Secured Notes having an aggregate principal
amount of $23,100,000. Interest on the New Senior Secured Notes accrues at a
rate of 12% per annum, and is payable semi-annually. The New Senior Secured
Notes are secured by substantially all the assets of the Company, including
the common stock of CGMI and CDGC. In addition, the Amended Indenture includes
certain restrictive covenants. The Company has complied with substantially all
of the covenants as of June 30, 1998, except as more fully described below.
The New Senior Secured Notes are redeemable prior to maturity, in whole or
part, at the election of the Company, at the redemption price of 100% of the
principal amount plus accrued and unpaid interest to the redemption date. The
New Senior Secured Notes mature in May of 2001. Required principal payments
through maturity is as follows:

                   June 30, 1999                                      --
                   June 30, 2000                               4,620,000
                   June 30, 2001                              18,480,000
                   Thereafter                                         --
                                                         ---------------
                   Total                                 $    23,100,000
                                                         ===============

         The indenture - The proceeds from the issuance of the Company's New
Senior Secured Notes are subject to certain restrictions, and the Company is
subject to certain restrictive covenants, including dividend restrictions,
pursuant to the Amended Indenture. The Company is also required to repurchase
the New Senior Secured Notes under certain conditions.

         Default Under the Amended Indenture

         The Amended Indenture contemplates that certain actions of the Company
require prior notice to (and in certain cases, approval from) the Advisory
Committee (as defined in the Plan) including the ability of the Company to
deliver to the Indenture Trustee a Definitive Budget (as defined in the Amended
Indenture). To date, the Advisory Committee has not been formed, substantially
due to the fact that the Company had been notified by several state gaming
regulators in states in which the Company conducts business that the breadth and
scope of the powers granted to the Advisory Committee in the Amended Indenture
require that the proposed members of the Advisory Committee be licensed by the
appropriate gaming regulators.

         On August 7, 1998, the Company was notified by counsel for the
Indenture Trustee of the occurrance of possible events of default ("Events of
Default") under the Amended Indenture with respect to the New Senior Secured
Notes. The alleged Events of Default included, among other things, an alleged
failure by the Company to deliver to the Indenture Trustee a Definitive Budget
(as defined in the Amended Indenture). In light of ongoing good faith
negotiations to amend the Amended Indenture in such a manner as would facilitate
curing any alleged Events of Default, the Indenture Trustee has been directed by
the majority noteholder to forebear, until December 31, 1998 from taking any
action, and has not taken any action to accelerate the New Senior Secured Notes,
foreclose on any collateral or otherwise execute any of its rights under the
Amended Indenture. (See Note [23]).

        As per the terms of the Amended Indenture, the Company made an interest
payment of $1,285,900 on November 12, 1997, and an interest payment of
$1,386,000 on May 15, 1998.


                                     F-26

<PAGE>

(12)     CAPITAL STRUCTURE

         Capital Structure After Reorganization

         Pursuant to the Plan, the Predecessor Company's common stock and
outstanding options were canceled on the Effective Date. The Plan also provided
for the amendment and restatement of the Company's Certificate of Incorporation
and bylaws. The new charter authorized 3,200,000 shares of no par value common
stock. Upon the Effective Date, 1,800,000 shares of common stock were authorized
for issue on a pro rata basis to the Company's various classes of creditors. In
addition, the Company's executive management became entitled to receive a total
of 66,667 shares of common stock on the Effective Date and 66,667 shares on the
one year anniversary following the Effective Date. Also on the Effective Date,
133,333 shares were reserved to be issued to executive management pursuant to
the Plan. The 66,666 remaining shares will be issued on the second anniversary
of the Effective Date.

         In accordance with Section 10 of the Company's Certificate of
Incorporation, the Company is imposing certain transferability restrictions
upon its 5-percent shareholders for purposes of Tax Code ss. 382. These
restrictions generally provide that the 5-percent shareholders shall be
prohibited from transferring shares of New Common Stock without the consent of
a designated Tax Advisor (the "Tax Advisor"). The Tax Advisor shall have no
obligation to consent to a transfer unless it determines that the proposed
transfer and any related proposed transfers do not create an unreasonable risk
of loss of, or material litigation on, the Company's use of its net operating
loss carryforwards.

         Preferred and Common Stock

         Preferred stock of the predecessor Company consisted of 5,000,000
authorized shares, of which none where issued. Common stock of the predecessor
Company consisted of 75,000,000 authorized shares. All predecessor common and
preferred stock were canceled under the Reorganization.

         The predecessor Company had adopted a Stock Option Plan. All
outstanding options were canceled pursuant to the Reorganization.

(13)     STOCK OPTION PLAN

         Pursuant to the Reorganization, the Company canceled all of its
existing stock options and adopted the 1997 Stock Option Plan covering 200,000
shares of the Company's common stock, pursuant to which officers, directors,
consultants of, or other people rendering services to the Company or its
subsidiaries are eligible to receive incentive and/or non-qualified stock
options. With respect to any option granted to any employee who was employed
by the Company prior to the Effective Date of the Company's Plan of
Reorganization no more than 100,000 of the shares authorized under the Stock
Option Plan may be awarded. The Plan expires in March 2007. Incentive stock
options granted under the Plan to employees who are not 10% owners are
exercisable for a period up to ten years from the date of grant at an exercise
price of $1.75 or such lesser amounts approved by the Company's noteholders
advisory committee. The exercise price may be adjusted subject to certain
recapitalization provisions of the Plan. Incentive stock options granted under
the Plan to employees who are 10% shareholders are exercisable for a period up
to five years at the same exercise price provision. As of June 30, 1998 there
were no options granted under the Plan.

(14)     COMMITMENTS AND CONTINGENCIES

         The Company has employment agreements with the Company's President and
Chief Operating Officer and Executive Vice President and General Counsel which
provide for two year terms expiring in May 2000 at the annual salary of $275,000
each. The agreements also provide for severance payments upon the occurrence of
certain terminations. An employment agreement with the Vice President of
Compliance requires annual compensation of $150,000 expiring May 2000. An
employment agreement with the Vice President and Chief Financial Officer
requires annual compensation of $100,000 expiring May 2000.

         The Company has covenanted to file, upon request from a majority of the
Holders of the New Senior Secured Notes or the Holders of the New Common Stock,
a registration statement under the Securities Act of 1933 with respect to the
New Senior Secured Notes and the New Common Stock. The Company also has agreed
to use its best efforts to cause such registration statement to be declared
effective by the Securities and Exchange Commission (the "SEC") within 180 days
following such notice.

                                     F-27

<PAGE>



(15)     PENSION PLAN

         Effective November 1, 1994, the Company adopted a defined contribution
(401(k)) plan covering all eligible employees. Under the terms of the Plan,
participating employees deposit a percentage of their salaries in the Plan. The
Company matches 100% of the employee's contribution up to a maximum of 6% of
salary. Expenses to the Company for the Plan for the year ended June 30, 1998,
the periods May 29, 1997 to June 30, 1997 and July 1, 1996 to May 28, 1997 and
the year ended June 30, 1996 was approximately $71,000, and $22,000, $51,000,
and $22,000 respectively.

(16)     PROPERTY LEASE

         The Company leases 2,646 square foot of office space in Phoenix,
Arizona under an operating lease which expires on December 31, 2000. The
Company's lease commitments under this non-cancelable lease will require annual
lease payments of approximately $50,000, and $25,000, for the fiscal years
ending June 30, 1999 and 2000. Rent expense for the year ended June 30, 1998,
the period May 29, 1997 to June 30, 1997, July 1, 1996 to May 28, 1997, and the
year ended June 30, 1996 was approximately $92,000, $8,000, $74,000, and
$129,000, respectively.

(17)     CONCENTRATION OF CREDIT RISK

         Financial instruments which potentially subject the Company to
concentrations of credit risk are cash equivalents and receivables arising from
Native American gaming development and operations. The Company places its cash
investments in high credit quality financial institutions and currently invests
primarily in U.S. government and Euro rollover obligations that have maturities
of less than three months. The Company had cash of approximately $830,000 as
of June 30, 1998, that is subject to credit risk beyond FDIC insured limits. The
Company had approximately $3,800,000 at June 30, 1998, in repurchase
agreements, cash management funds and Euro investments which are not insured.

         The Company has recorded as of June 30, 1998, $709,000, in management
fees due from Native American Tribes under management contracts as well as
$3,693,000, for development loans to Tribes. Federally recognized Native
American Indian tribes are sovereign nations governed by federal statutes that
are different than statutes governing commercial enterprises in the United
States. As of June 30, 1998, these receivables are due from three tribes,
collectively. While the Company has legal counsel experienced in Indian gaming
law and matters, there is the risk that the Company may not prevail if
collectability is forced into litigation. The Company does not require
collateral or other security to support financial instruments subject to credit
risk, beyond the pledge of each Tribe of their gaming reserves. Management has
no dispute with any Native American Tribe that would place doubt on the full
collectability of any of the receivables. The Company takes all necessary legal
measures in the documentation and preparation of agreements executed with Native
American Tribes, including the Tribe's waiver of sovereign immunity related to
contract enforcement and securing appropriate regulatory approval.

         The Company's management fee revenues are derived from three Native
American Indian tribes as follows: (the fiscal year ended June 30,1997 includes
the two periods July 1, 1996 through May 28, 1997 and May 29, 1997 through June
30, 1998)

                                  Fiscal Year Ended June 30,
                                  --------------------------
                                       1998       1997  
                                       ----       ----  
          Muckleshoot Tribe             14%       28%   
     
          Tonto Apache                  28%       25%   

          Umatilla                      58%       47%   

         The loss of any one of these Tribes could have a material adverse
effect on the Company's financial condition.

(18)     FAIR VALUE OF FINANCIAL INSTRUMENTS

         Effective June 30, 1996, the Company adopted Statement of Financial
Accounting Standards No. 107, Disclosure About Fair Value of Financial
Instruments which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance

                                     F-28

<PAGE>

sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled,
nor does the fair value amount consider the tax consequences of realization or
settlement.

         In assessing the fair value of the financial instruments, the Company
used a variety of methods and assumptions, which were based on estimates of
market conditions and risks existing at that time. For certain instruments,
including cash and cash equivalents, trade receivables, trade payables, it was
concluded that the carrying amount approximated fair value because of their
short maturities.

         The 12.0% Senior Secured notes due 2001 are carried at their face value
of $23,100,000. The fair value of the Company was determined to be $23,500,000
of which $23,100,000 was attributed to senior secured notes and $400,000 to
common stock.

(19)     EXTRAORDINARY ITEMS

         Approximately $1,998,000 was recorded as early extinguishment of debt
related to the distribution of an aggregate $49,986,000 on July 29, 1996 in
cash and Purchasers Notes to the Senior Secured Noteholders from the sale of
CCCD and CMC. The $1,998,000 is comprised of the accelerated write-off of
$1,350,000 in Deferred Finance Costs and $648,000 in Original Issue Discounts.

         Approximately $103,464,000 was recorded as an extraordinary gain as
the result of the Company's debt restructuring under Chapter 11 and the adoption
of fresh-start reporting. The $103,464,000 is comprised of the following:

         Write-off Deferred Finance Costs and 
           Original Issue Discounts                               $  (4,311,000)
         Record New Notes in exchange for old debt                  (23,100,000)
         Record New Notes issued to management 
           included in Reorganization Items                             550,000
         Reduce Liabilities Subject to Compromise to zero           130,325,000
                                                                  -------------
              Total                                                $103,464,000
                                                                   ============

         There is no income tax effect on the extraordinary items due to the
cancellation of indebtedness as more fully described in Note 6.


(20)      RESTRICTED FUNDS IN ESCROW

         Restricted funds in escrow as of June 30, 1998 consist of $541,000 held
in escrow by the Bond Indenture Trustee. Restricted funds in escrow as of June
30, 1997 consists of $500,000 held by an escrow agent in New Orleans, Louisiana,
represents funds withheld from the sale of CCCD and $426,000 held in escrow by
the Bond Indenture Trustee. On July 17, 1997, the $500,000 was transferred to
the Bond Indenture Trustee. The $541,000 held by the Bond Indenture Trustee as
of June 30, 1998, is for the benefit of the New Senior Secured Noteholders for
payment of the New Senior Secured Notes, and is classified as non-current.

(21)     LEGAL PROCEEDINGS

         Pursuant to the Plan, all legal proceedings against the parent
company prior to the Effective Date of May 28, 1997 were settled pursuant to
the Plan. As a result there was no litigation pending against the parent
company on the May 28, 1997 Effective Date. The Company may be subject to
various legal proceedings in the ordinary course of business although is not
aware of the existence of any such pending or threatened legal proceedings at
this time. 




                                     F-29

<PAGE>
      1. Republic Litigation

         In connection with the consummation of the Company's Plan of
Reogranization, Republic Corporate Services, Inc. ("Republic") is to receive a
distribution on account of its unsecured claims equal to its pro-rata share of
the 150,000 shares of New Common Stock and of the $550,000 in New Secured Notes
to be distributed to the holders of Allowed Class 4 Claims other than the
Indenture Trustee. On August 20, 1997 the Arizona Department of Gaming ("ADOG")
notified the Company that ADOG would conduct a background investigation of
Republic prior to issuing a permanent certification to the Company. This
notification was communicated to Republic by the Company and ADOG sent further
notification to Republic on October 5, 1997. In response to ADOG's August 20,
1997 notification, the Company had notified Republic that a License Event had
occurred as defined in, and pursuant to, the Company's Amended and Restated
Certificate of Incorporation ("Amended Certificate") and that the Company
invoked its right to have Republic's equity securities distributed to an
independent trustee and that the Company further intended to redeem such
securities in accordance with the terms of the Amended Certificate. On November
5, 1997 Republic filed a Complaint for Declaratory Judgment, Specific
Performance and Other Relief with the U.S. Bankruptcy Court for the District of
New Jersey seeking a declaration that its ownership of equity securities is not
a License Event or, in the alterative, that if such equity ownership is a
License Event then, in effect, that Republic's equity securities should be
redeemed at $2.38 per share and its New Secured Notes should be redeemed at par.
On April 16, 1998 the Company and Republic entered into a stipulation of
settlement which provides, among other things, that any equity securities slated
for distribution to Republic pursuant to the Plans will be distributed to a
possession trustee and provides that William S. Papazian, Executive Vice
President and General Counsel of the Company, will maintain all voting rights
with respect to such equity securities pursuant to a Voting Trust until such
time as such securities are sold to a suitable purchaser.

      2. Muckleshoot Litigation

         On January 30, 1998 the Muckleshoot Tribal Gaming Commission summarily
notified the Company that the Company's gaming license had been revoked based on
an assertion that the Company's certification with the Washington State Gambling
Commission ("WSGC") had lapsed. Additionally, on the same date the Muckleshoot
Tribal Council purported to terminate the Company's management contract on
similar grounds. Subsequently, the WSGC had notified the Muckleshoot Tribe that
the Company remained in good standing with the WSGC and would be immediately
recertified upon request of the Muckleshoot Tribe. Moreover, on April 29, 1998
the WSGC notified the Company that it had been recommended for the issuance of a
gaming license and such license was subsequently issued.
        
         In response to the termination of the contract, the Company commenced
litigation in the U.S. District Court in the Western District of Washington at
Seattle, ("U.S. District Court") which asserted, among other things, breach of
contract. On July 20, 1998 the Company and its subsidiary, CGMI, and the
Muckleshoot Tribe achieved an amicable resolution to the legal proceedings (See
footnote [23]).


<PAGE>




(22)       NEW AUTHORITATIVE PRONOUNCEMENTS

         The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Earlier application is
permitted. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Management is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.

         The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are reported in annual financial statements and requires the reporting of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's consolidated results of operations, financial position or cash
flows.

         In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure
about Pensions and Other Postretirment Benefits," which is effective for fiscal
years beginning after December 15, 1997. The modified disclosure requirements
are not expected to have a material impact on the Company's results of
operations, financial position or cash flows.

         The Financial Accounting Standard Board (FASB) has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and how it is designated, for example, gain or losses
related to changes in the fair value of a derivative not designated as a hedging
instrument is recognized in earnings in the period of the change, while certain
types of hedges may be initially reported as a component of other comprehensive
income (outside earnings) until the consummation of the underlying transaction.

         SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Intial application of SFAS No. 133 should be as
of the beginning of a fiscal quarter; on that date, hedging relationships must
be designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company will evaluate the new standard to determine any required new disclosures
or accounting.

<PAGE>
(23)       SUBSEQUENT EVENTS

Muckleshoot Litigation

         In response to the termination of the Muckleshoot Management contract,
the Company commenced litigation in the U.S. District Court in the Western
District of Washington at Seattle, ("U.S. District Court") which asserted, among
other things, breach of contract. On July 20, 1998 the Company and its
subsidiary, CGMI, and the Muckleshoot Tribe achieved an amicable resolution to
the legal proceedings as follows:

         The parties entered into a Joint Stipulation and requested the U.S.
District Court to enter an order of settlement and dismiss with prejudice the
litigation between the parties. The U.S. District Court subsequently entered the
order of settlement.

         Pursuant to the Joint Stipulation, the Company will receive a total of
Three Million Three Hundred Thousand ($3,300,000) Dollars, with One Million
($1,000,000) Dollars (the "Initial Payment") being paid within three days after
the U.S. District Court entered the order of settlement and Two Million Three
Hundred Thousand ($2,300,000) Dollars being paid in equal monthly installments
over the term of twenty four (24) months commencing August 1, 1998. Such
payments, when fully received, will constitute mutual fulfillment of the
Exclusive Operating Agreement between the Muckleshoot Tribe and the Company
dated April 24, 1995. The U.S. District Court entered the order of settlement
and the Company received the Initial Payment on July 29, 1998. All monthly
installments to date have been timely received.

         As a result of the Company's Casino Management Agreement dispute with
the Muckleshoot Indian Tribe, (the "Muckleshoot Dispute"), the Company recorded
only six months revenues for the period June 30, 1997 through December 31, 1997,
of $1,120,000, for the management of the Muckleshoot Casino in its resutls of
operations for the fiscal year ended June 30, 1998. For the year ended June 30,
1998, the Company continued to amortize its deferred assets -- Investment in
Muckleshoot Agreement, for the full twelve months, and recorded a receivable of
$198,804 for the Muckleshoot management fee receivable for the month of December
1997.

         In fiscal year 1999, upon the execution of the Settlement Agreement of
the Muckleshoot dispute on or around July 20, 1998, which required the
Muckleshoot Indian Tribe to pay the Company $3.3 million, $1 million paid at
settlement with the remaining balance paid in equal increments over a 24 month
period commencing August 1, 1998, in complete settlement of the Muckleshoot
Dispute, the Company recorded management fee revenues of $3.3 million, less the
$198,804 reveivable as of June 30, 1998, wrote-off the unamortized balance of
the Investment in the Muckleshoot Agreement as of July 20, 1998, and established
a receivable for the $2.3 million settlement balance due the Company as of July
20, 1998.

Pueblo of Laguna Management Agreement

         On July 24, 1998 CGMI entered into a management and development
agreement with the Pueblo of Laguna to exclusively develop, finance, construct,
operate and manage an interim casino to be located on Interstate 40 on the
trbe's sovereign reservation lands aproximately 45 miles west of Albuquerque,
New Mexico. The proposed 30,000 square foot casino will offer Las Vegas -- style
table games, slot machines and poker as well as restaurants, a gift shop and
other amenities. The management and development agreement, which is subject to
the approval of the National Indian Gaming Commission, provides that CGMI will
receive a management fee of 30% of net profits (as defined) over a term of seven
(7) years from the oficial data of opening of the casino. 

<PAGE>

Amended Bond Indenture

         On August 7, 1998, the Company was notified by counsel for the
Indenture Trustee of the occurrance of possible events of default ("Events of
Default") under the Amended Indenture with respect to the New Senior Secured
Notes. The alleged Events of Default included, among other things, an alleged
failure by the Company to deliver to the Indenture Trustee a Definitive Budget
(as defined in the Amended Indenture). In light of ongoing good faith
negotiations to amend the Amended Indenture in such a manner as would facilitate
curing any alleged Events of Default, the Indenture Trustee has been directed by
the holders of a majority in principal amount of the New Senior Secured Notes to
forebear, until December 31, 1998 from taking any action, anbd has not taken any
action to accelerate the New Senior Secured Notes, foreclosure on any collateral
or otherwise execute any of its rights under the Amended Indenture.

         The Indenture Trustee, and the holders of a majority in principal
amount of the New Senior Secured Notes and the Company have had good faith
negotiations to resolve the various Events of Default under the Amended
Indenture and all parties have reached agreement in principle as to a Second
Amended and Restated Indenture which would resolve any Events of Default. On
October 23, 1998 the Company and the Indenture Trustee filed a Joint Motion for
an Order approving modifications of the Plan of Reorganization with the
Bankruptcy Court (the "Motion"). The Motion provides, in pertinent part, (i) the
Amended Indenture will be revised to eliminate the Advisory Committee, (ii)
certain majority holders will elect to hold their equity distributions in a
voting trust with the Company's new Chairman, Charles B. Brewer, acting as
voting trustee, (iii) for the amendment of the Company's Articles of
Incorporation and By-laws to provide for two classes of Common Stock (Common
Stock and Class A Common Stock), identical in all respects except that Class A
Common Stock will have the right to elect a controlling number of Board members
and will be distributed to the holders of Old Senior Secured Notes on account of
their Allowed Secured Claims (as defined in the Plan of Reorganization), and
(iv) that the Amended Indenture will be revised with respect to the mechanisms
by which Excess Cash (as defined in the Amended Indenture) is deposited in the
cash collateral account held by the Indenture Trustee. A hearing on the Motion
has been set for November 16, 1998. Once implemented, the revisions to the
Amended Indenture will definitively cure any alleged Events of Default. The
Amended Indenture Trustee, the majority noteholder and the Company believe it is
reasonably probable that the Events of Default will be cured on or before
December 31, 1998.


(24)      SUBSEQUENT EVENTS (unaudited)

Bureau of Indian Affairs Aproval

         On September 3, 1998 the Secretary of the Interior and the Deputy
Commissioner of the Bureau of Indian Affairs approved the Management Agreement
between the Narragansett Tribe and CDGC pursuant to 25 CFR Section 81. While
this approval does not impact the Narragansett Tribe's right to offer gaming
pursuant to IGRA, the approval is significnat because it protects the
Narragansett Tribe and CDGC from any assertion that the Management Contract is
null and void under the provisions of 25 U.S.C. Section 81 due to lack of
approval.

                                     F-30

<PAGE>

            INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY SCHEDULE


To the Board of Directors and Stockholders of
 Capital Gaming International, Inc.
 Phoenix, Arizona



         Our report on the consolidated financial statements of Capital Gaming
International, Inc. and its subsidiaries is included on page F-2 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related consolidated financial statement Schedule II, Valuation
and Qualifying Accounts, on page S-2 of Form 10-K.

         In our opinion, the consolidated financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.



                                           MOORE STEPHENS, P.C.
                                           Certified Public Accountants

Cranford, New Jersey
August 7, 1998




                                      S-1


<PAGE>


                      CAPITAL GAMING INTERNATIONAL, INC.
                                  SCHEDULE II
                       VALUATION AND QUALIFYING ACCOUNTS
                                   (ROUNDED)



<TABLE>
<CAPTION>




                                           Balance at       Charged to       Other
                                           Beginning of     Cost and         [Deductions]      Balance at End
Description                                Period           Expenses         Additions         of Period
----------------------------------------   ------------     ----------       -------------     ---------------
<S>                                        <C>              <C>              <C>               <C>
June 30, 1998:                                   N/A              N/A              N/A               N/A

June 30, 1997:                                   N/A              N/A              N/A               N/A

June 30, 1996:
   Prepaid Rent - Reserve (New Orleans      $  4,859,000      $    -          $   (4,859,000)    $    -        
     Dock Board)
   Cash Held in Escrow - Port of New           2,192,000           -              (2,192,000)         -        
     Orleans - Reserve
   Uncollectible Patron Markers - Reserve         14,000           -                 (14,000)         -        
   Employee Advance - Reserve                      9,000           -                  (9,000)         -        
                                            ------------      ----------      --------------     -----------   
         TOTALS                             $  7,074,000      $    -          $   (7,074,000)    $    -        
                                            ============      ==========      ==============     ===========   
</TABLE>

                                     S-2